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FOREX -Dollar up vs euro on durable goods strength, potential ECB easing
April 24, 2014 / 1:56 PM / in 4 years

FOREX -Dollar up vs euro on durable goods strength, potential ECB easing

* March US durable goods orders give upside surprise, supports greenback

* ECB’s Draghi reiterates warning about QE, negative rates

* Euro/dollar implied vols crushed, at lowest since 2007

* Yen firm as Tokyo shares slip on lack of US-Japan trade pact (Recasts with U.S. data, comments, new dateline and byline)

By Daniel Bases

NEW YORK, April 24 (Reuters) - The U.S. dollar rose on Thursday after better-than-expected U.S. durable goods orders while ECB President Mario Draghi undermined the euro by reiterating the potential for asset purchases to ward off deflation risks.

Draghi also warned a rising euro, which effectively tightens the money supply at a time when the European Central Bank is looking to boost economic stimulus, could force the ECB’s hand on monetary policy measures.

March U.S. durable goods orders rose 2.6 percent, above economists’ forecast for a 2 percent gain. An increase in initial weekly jobless claims was pegged to seasonal factors, and therefore discounted by the market.

“The stronger dollar is a reaction better durable goods orders and how that influences changes to GDP projections,” said Brian Daingerfield, currency strategist at Royal Bank of Scotland in Stamford, Connecticut.

“This week has been a sort of holding week, and euro/dollar has been in a tight range because there has been no main driver to push the consensus view on (U.S. Federal Reserve) or ECB policy,” he said, adding that next week’s euro zone inflation data and U.S. April unemployment report will be key influences on future ECB policy.

The euro fell 0.15 percent to $1.3795 following the U.S. data. Earlier, Draghi’s comments left the euro weaker, but an upbeat German IFO survey did help the euro reach a session high of $1.38435.

Draghi stressed the ECB sees inflation remaining low for a prolonged period before rising again. But he added the ECB could embark on a broad-based asset buying plan if the euro zone inflation outlook worsens.

He warned a rise in the currency that effectively tightened monetary policy could trigger policy action, including a negative deposit rate. “The exchange rate is an increasingly important factor in our assessment of the outlook for price stability,” Draghi said.

But traders said further euro losses were unlikely until the ECB backed up words with action. The euro is also being supported by falling excess liquidity in the euro zone banking system, a factor that keeps overnight rates elevated and adds to the currency’s allure.

The euro fell 0.17 percent to 141.45 yen while the dollar was unchanged at 102.53 yen.

The yen rose against the dollar as Tokyo shares fell nearly 1 percent after Japanese Prime Minister Shinzo Abe said a trade deal with the United States had not yet been finalised.

New Zealand’s dollar hit a one-week high of $0.8638 after its central bank, as expected, hiked its cash rate to 3.0 percent from 2.75 percent and said policy would continue to tighten to stay on top of inflationary pressures. The kiwi however fell back to $0.8558, off 0.34 percent. (Additional reporting by Anirban Nag in London and Masayuki Kitano in Singapore; Editing by Catherine Evans and Meredith Mazzilli)

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