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FOREX-Euro slides below $1.34, eyes on Fed and U.S. GDP data
July 30, 2014 / 11:46 AM / 3 years ago

FOREX-Euro slides below $1.34, eyes on Fed and U.S. GDP data

* Euro touches eight-month low below $1.34 vs dollar

* Swedish crown hits two-year low vs dollar

* Eyes on U.S. Q2 GDP, Fed statement later on Wednesday

* Dollar index holds firm, hits fresh six-month peak (New quote, updates prices)

By Jemima Kelly

LONDON, July 30 (Reuters) - The euro fell below $1.34 on Wednesday for the first time since last November on concern that German inflation data due at 1200 GMT will add to the case for the European Central Bank to pump more money into a struggling economy.

Regional German data showed inflation softening to well below 1 percent even in the euro zone’s strongest economy, while prices in Spain, Greece and Portugal are actually falling.

Another European economy, Sweden, said it grew less than expected in the second quarter, driving the crown to its weakest against the greenback in two years at 6.90 crowns per dollar.

The contrast between that picture and an increasingly robust U.S. recovery is one factor behind the dollar’s rise this week to a six-month high against a basket of major currencies.

“Really it’s been more about sentiment coming off in the euro area and the euro falling ... than a dollar-on move,” said Sara Yates, a currency strategist at JPMorgan Private Bank.

“What will be key now is whether the baton is passed to the U.S. and we start to see U.S. yields move and the dollar strengthen.”

The dollar’s move has prompted hopes it may be ready to deliver on a surge higher predicted by many investment houses at the start of the year. But the main driver of that is expected to be higher U.S. interest rates and there is no sign yet of benchmark Treasury yields picking up; the 10-year paper last stood at 2.476 percent, rooted close to two-month lows.

A Federal Reserve policy decision and statement later on Wednesday will be looked to for any hint of when U.S. interest rates could be raised next year. Second-quarter gross domestic product data is also due at 1230 GMT, along with ADP employment numbers.

The euro hit a fresh eight-month low of $1.3395 before recovering to $1.3402, down around 0.1 percent on the day. .


Traders said there was a big option barrier at $1.34 that came under attack in morning trade in Europe, but once that had been broken, most players had moved to the sidelines ahead of the U.S. data.

If German consumer price data comes in below forecast it would put more pressure on the ECB but analysts said that further easing was not likely soon given it has just announced another round of cheap long-term loans for banks.

“I think the ECB is willing to take some time to assess the effect of those easing measures before announcing anything further,” said Lee Hardman, a currency economist at the Bank of Tokyo-Mitsubishi UFJ in London.

Worries about the situation in Ukraine and concerns that sanctions against Russia would have a negative economic impact on Europe have weighed on the euro recently, said Bart Wakabayashi, head of foreign exchange for State Street Global markets in Tokyo.

A survey last week showed German business sentiment at its lowest ebb in nine months in July, adding to signs that Europe’s largest economy is slowing and suggesting that firms are worried about the crises in Ukraine, Iraq and Gaza.

The Fed is expected to cut its monthly bond-buying programme by another $10 billion on Wednesday and may also hint at an approaching hike in interest rates in light of labour market growth, with unemployment at its lowest in six years.

“A more dovish than expected outcome with few changes could see a reversal of recent dollar buying, but the introduction of new language on the impact of stronger labour markets following (Fed chair) Yellen’s recent remarks would still be a significant hawkish surprise,” Citi analysts said in a note.

Against a basket of major currencies, the dollar touched a high of 81.312, its strongest level in six months.

The yen hit a six-week low of 102.28 yen per dollar. (Additional reporting by Ian Chua in Sydney and Masayuki Kitano in Singapore, Editing by Nigel Stephenson and Hugh Lawson)

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