August 14, 2014 / 2:40 PM / 3 years ago

FOREX-Dollar falls on U.S. jobless claims

(Recasts, updates prices, adds analyst comment, U.S. data, changes byline; dateline; previous LONDON)

* U.S. initial jobless claims rise, data weighs on dollar

* U.S. dollar outlook remains bright

* Euro zone data seen not as bad as expected

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 14 (Reuters) - The dollar weakened broadly on Thursday, falling after three straight days of gains, on yet another piece of data suggesting a bumpy recovery for the U.S. economy.

An increase in the weekly U.S. jobless claims came a day after an unexpectedly flat retail sales report, which reinforced expectations the Federal Reserve would be in no rush to raise interest rates. Higher interest rates tend to enhance the dollar’s appeal as they boost the yield of some U.S. assets.

Data showed on Thursday that the number of Americans filing new claims for unemployment benefits rose more than expected last week. Initial claims for state unemployment benefits increased 21,000 to a seasonally adjusted 311,000 for the week ended Aug. 9, higher than economists’ expectations for a rise to only 295,000.

“The soft (jobless claims) data ... further dents some of the dollar’s recent allure,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, although he remained bullish on the greenback.

The outlook for the dollar this year remained upbeat, many analysts said, compared to that of the euro and yen, whose economies are still struggling. An already sluggish euro zone economy has further hit a rough patch with the negative impact of the Russia-Ukraine crisis on Germany, the euro zone’s largest nation.

Japan, meanwhile, remained mired in recession, with the economy contracting 6.8 percent in the second quarter. Some strategists have called for the dollar to hit 109 yen by the end of the year. The dollar was last flat on the day at 102.42 yen .

“The divergence in outlook between the U.S. and many other industrialized economies remains a key pillar of support for the dollar,” Commonwealth’s Esiner said.

In mid-morning trading, the dollar index, fell 0.2 percent to 81.458.

The euro, meanwhile, rose 0.2 percent to $1.3394, with many investors relieved the euro zone as a whole did not shrink in the second quarter, despite Germany’s contraction.

Though euro area growth stalled in April-June, missing modest expectations of 0.1 percent, the numbers provided some respite for the euro after the weaker-than-expected data from Germany and France. The latter has failed to produce any growth at all since the start of the year.

The final reading for euro area inflation of 0.4 percent in July on an annualised basis, though weak, was in line with expectations.

“You did see a little bit of a down-move on the German and French data this morning but by the time you’d got to (the data for) the euro area as a whole ... the consensus had moved,” said Marvin Barth, European head of currency strategy at Barclays.

German 10-year bond yields briefly traded below 1 percent for the first time ever after the disappointing data from the supposed powerhouse of Europe. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Jemima Kelly in London; Editing by Nick Zieminski)

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