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FOREX-Euro gains vs U.S. dollar; yen drops as G20 meets
April 18, 2013 / 8:51 PM / 4 years ago

FOREX-Euro gains vs U.S. dollar; yen drops as G20 meets

* Euro stays above chart support at $1.30
    * Upcoming euro zone economic data key to euro outlook
    * U.S. leading indicators, Philly Fed index unexpectedly
weak

    By Wanfeng Zhou and Daniel Bases
    NEW YORK, April 18 (Reuters) - The euro edged higher against
the dollar on Thursday as more signals of a weakening U.S.
economic recovery lifted it from its biggest daily drop in 10
months in the previous session.
    The yen slipped against the dollar and euro as investors
believed Japan was unlikely to face much criticism of its
aggressive monetary easing at a meeting of the Group of 20
countries beginning on Thursday in Washington.
    The euro lost 1.1 percent on Wednesday, its worst daily
performance since June, after European Central Bank Governing
Council member Jens Weidmann was quoted by the Wall Street
Journal as saying the bank could ease policy further if economic
data warrants it. 
    "The keys to the euro going forward should be squarely in
the hands of euro zone data. A continued stream of lackluster
data would strengthen the case for an ECB rate cut and weigh on
the euro," said Joe Manimbo, senior market analyst at Western
Union Business Solutions in Washington.
    U.S. data on Thursday showed the number of Americans filing
new claims for unemployment benefits rose last week and growth
in factory activity in the nation's Mid-Atlantic region cooled
in April.
    The softening of the U.S. growth outlook was also
underscored by another report that showed a gauge of future
economic activity fell in March for the first time in seven
months. 
    "The market is still slightly shaken because more data keeps
rolling in that doesn't meet the growth expectations for the
United States," said Greg Anderson, G10 strategist at CitiFX, a
division of Citigroup in New York.
    "We'll have a nervous market until we get U.S. GDP,
resulting in some risk-off strength of the U.S. dollar,"
Anderson added. "Expectations are for 3 percent (GDP) growth,
but we could easily get north of that. Once it is on the radar,
or a day or two away from it, I think we could see risk-on
currencies such as Aussie, kiwi and Sweden recover." 
    U.S. first-quarter GDP data, due for release on April 26, is
expected to show a 3 percent increase. 
    The euro rose 0.15 percent to $1.3048, finding strong
support at a session low of $1.3020 and the psychologically
important $1.30 area. It hit a session peak of $1.3096. 
    Against the yen, the euro rose 0.25 percent to
128.15 yen, holding below its recent three-year high of 131.11
yen.
    Despite the bounce, analysts said the euro looked vulnerable
as expectations grew the ECB may soon lower interest rates.
    Weidmann's comments "by themselves are not new," said
Michael Sneyd, currency strategist at BNP Paribas in London.
"However, the fact that the comments were made by the most
hawkish member of the Governing Council suggests the ECB is
quite close to delivering a refi rate cut."
    Some analysts were skeptical about how negative this would
be for the euro. Unlike Japan and the United States, the ECB is
not printing money via quantitative easing, which tends to
weaken the currency. Some also said a rate cut could be positive
for the euro zone growth outlook.
    Incoming Bank of England Governor Mark Carney said the Fed's
system of steering investors with numerical thresholds for
unemployment and inflation was helpful as markets begin to
contemplate the end of massive central bank stimulus for
economies. 
    "I think the value of the Fed's ... guidance helps a lot
with this," Carney said at a Reuters Newsmaker event on
Thursday. Carney is currently governor at the Bank of Canada.
    The euro also looked vulnerable to euro zone political
risks. Italy's parliament failed to elect a new state president
in its first vote on Thursday, with deep splits in the center
left torpedoing a quick victory for its official candidate,
Franco Marini. 
    The dollar rose 0.13 percent to 98.22 yen, with
traders citing support around 97.60 yen.
    Analysts said the yen looked set to weaken further. The
dollar hit a four-year high of 99.94 yen last week, stalling
just short of option barriers at the psychologically key 100 yen
threshold.
    "This is a longer-term move and therefore periods of
correction are basically buying opportunities and that's
probably what we are in at the moment," said Steve Barrow, head
of G10 currency research at Standard Bank, who said 110 yen was
a likely target for this year.
    The Bank of Japan's radical monetary policy overhaul will
pump about $1.4 trillion into the economy in less than two years
via a hefty bond-buying scheme that is expected to drive
Japanese investors to look overseas in search of better yields.
    But weekly data from the Japanese Ministry of Finance showed
Japanese investors actually selling their holdings of foreign
bonds over the last week. Still, analysts said low returns and a
weakening yen would eventually drive money out of the country.

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