February 14, 2014 / 2:50 AM / 4 years ago

FOREX-Dollar struggles after soft US data, euro looks to GDP

* Dollar index wallows after disappointing consumer spending, jobless claims

* Euro brushes off news of Italy PM’s resignation, looks to GDP

* Aussie pokes above 90 U.S. cents after China inflation data

By Ian Chua

SYDNEY, Feb 14 (Reuters) - The U.S. dollar was pinned at three-week lows against a basket of major currencies on Friday after disappointingly soft U.S. data dealt a blow to the already struggling greenback.

The Euro brushed off news that Italy’s prime minister would resign, instead focusing on the euro zone’s GDP data due later in the day for near term direction.

U.S. retail sales fell unexpectedly in January and more Americans filed for jobless benefits last week, the latest signs the world’s biggest economy started the year on a softer footing as bad weather took its toll.

The dollar index slid to a low of 80.194, reaching a level last seen on Jan. 24. It has since crept up to 80.282.

The dollar stood at 102.08 after clawing back from Thursday’s low of 101.695, while the euro climbed to a near three-week peak of $1.3675.

The decline by the dollar index came as U.S. Treasury yields fell. Oddly, Wall Street recovered and closed higher as some investors looked past the disappointing data, chalking the weakness up to weather instead of weaker fundamentals.

The euro barely reacted to news that the Italian prime minister will resign on Friday, opening the way for the country’s third administration in a year.

“Market players are turning a blind eye to the Italian prime minister’s resignation as recently the euro zone economy has been spared from bearish news,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.

“But the market will react quickly once the euro zone economy starts showing signs of weakness,” Sera said.

Investors will have a chance to gauge the health of the euro zone economy through the fourth quarter growth data later in the day. Analysts polled by Reuters expect slightly faster growth in the euro zone economy.

“After ECB President (Mario) Draghi specifically pointed to Q4 GDP as a key piece of incoming evidence on the economy, the report should be watched closely today,” analysts at BNP Paribas wrote in a note to clients.

Last week, Draghi put markets on alert for possible policy action in March.

Any positive news on growth, however, is still likely to be offset by persistently low inflation, which will be key for further ECB easing and a weaker euro, BNP analysts said.

The standout currency overnight was sterling which climbed to its highest in nearly three years against the greenback. It hit $1.6675, taking total gains this week to more than 1.5 percent.

The soft U.S. data stood in stark contrast with the Bank of England’s much more upbeat outlook for the British economy which helped lift the pound this week.

The Australian dollar was in focus after it dropped one full U.S. cent on Thursday in the wake of surprisingly weak labour data.

It touched a low of $0.8928 before clawing back half its losses, nudging above 90 U.S. cents following data out of China that showed consumer prices rose 2.5 percent in January, broadly in line with expectations.

China is Australia’s main export market and the Aussie is often used as a liquid proxy for China plays.

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