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FOREX-Bullish dollar retains bulk of gains on good US growth, more data awaited
July 31, 2014 / 2:45 AM / 3 years ago

FOREX-Bullish dollar retains bulk of gains on good US growth, more data awaited

* Upbeat U.S. Q2 GDP partly offset by mixed Fed views

* Dollar still firmer across the board

* Nonfarm payrolls, PMI reports for China & euro zone next focus (Adds details, quotes)

By Ian Chua and Shinichi Saoshiro

SYDNEY/TOKYO, July 31 (Reuters) - The dollar held below a 10-month peak against a basket of major currencies on Thursday after soaring on upbeat U.S. growth data, with mixed views from the Federal Reserve tempering the rally.

However, the dollar looked poised to resume rising should U.S. indicators due by Friday continue to paint a brighter economic picture.

The dollar index last traded at 81.386 after rising as far as 81.545 - a high last seen in mid-September. Still, the index is up more than 2 percent so far this month, on track for its biggest monthly gain in over a year.

Dollar bulls took heart after the U.S. economy rebounded sharply in the second quarter, with gross domestic product (GDP) motoring at a 4.0 percent annualised pace.

The dollar’s rally was tempered somewhat after the Fed on Wednesday reaffirmed it was in no rush to raise interest rates, even as it upgraded its assessment of the U.S. economy and expressed some comfort that inflation was moving up toward its target.

Junichi Ishikawa, market strategist at IG Securities in Tokyo, said any selling that resulted from the Fed meeting “is likely to be temporary. It gave a fair view on the economy and despite expressing concern about the labour market, it took note of declining unemployment. Most important of all, it made a more confident assessment on inflation.”

“It wasn’t a dovish message, but not necessarily a hawkish one either, although the Fed did leave a psychological impact on the market with its latest view on the economy and inflation,” said Ishikawa.

He said he believes the dollar could receive a fresh boost if U.S. data due later in the day such as jobless claims and the Chicago PMI prove strong.

The main focus is still on Friday’s U.S. non-farm payrolls, with manufacturing surveys in China and the euro zone also closely watched.

Another month of healthy U.S. jobs growth will only embolden dollar bulls, with markets continuing to look for signs of when the Fed will eventually lift interest rates.

The two-year Treasury yield jumped to its highest in over three years at 0.59 percent, which in turn helped boost the allure of the U.S. dollar.

Against the yen, the greenback climbed to a four-month high of 103.15, before steadying at 102.80. It was poised to gain about 1.4 percent on the month against the yen.

The euro skidded to a near nine-month trough of $1.3366 but recovered most of its losses to last stand at $1.3397. The euro was on track to lose 2.1 percent versus the dollar.

Not helping the common currency, data showed annual inflation in Germany slowed to 0.8 percent in July, an outcome that pointed to another soft reading for EU-wide inflation due out later in the day.

“We remain constructive on the USD and continue to run long USD/JPY and short EUR/USD recommendations,” analysts at Barclays wrote in a note to clients.

The dollar also fared well against higher-yielding currencies such as the Australian dollar, which plumbed a two-month low of $0.9301 before edging back to $0.9327. (Editing by Eric Meijer and Richard Borsuk)

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