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FOREX-Dollar rally fizzles as euro comes off lows
March 21, 2014 / 3:40 PM / 4 years ago

FOREX-Dollar rally fizzles as euro comes off lows

* Euro rises after data on euro zone current account surplus

* Markets seek more clarity on Fed policy

* Crimea tensions drive up safe-haven yen, Swiss franc (Recasts; adds New York trades, quotes; changes byline; dateline previously LONDON)

By Michael Connor

NEW YORK, March 21 (Reuters) - The dollar’s three-day rally sputtered on Friday as the euro rose against the greenback on after data showed a record euro zone current account surplus in January.

The dollar, whose gains accelerated on Wednesday after the chair of the Federal Reserve hinted that U.S. interest rates may rise sooner than anticipated, eased against other major currencies.

The U.S. dollar index, which measures the dollar against six major currencies, declined by 0.08 percent to 80.124, a day after touching a three-week high of 80.354.

The euro, which earlier this week had been trading just shy of $1.40, was up 0.22 percent to $1.3809. The shared currency struck a two-week low of $1.3749 on Thursday.

The speculation that the United States may accelerate the end of ultra-low interest rates had obscured the international trade flows and other economic fundamentals that favor the euro over the dollar, said Michael Woolfolk, senior market strategist at Bank of New York Mellon in New York.

“It’s a return to the mean,” Woolfolk said. “What we are seeing is a return to where the euro wants to be: above the $1.38 level.”

The euro was also helped by capital inflows.

With the European Central Bank showing little inclination to ease monetary policy soon, analysts said inflows into rate-sensitive money markets are likely to continue alongside robust demand for European stocks and peripheral euro zone bonds.

Comments by Fed Chair Janet Yellen that had prompted markets to price in a U.S. rate hike early next year came under renewed scrutiny on Friday.

“There is a reassessment of Fed rate hike expectations that is taking place which is keeping the dollar pegged back,” said Manuel Oliveri, FX strategist at Credit Agricole.

“The euro, on the other hand, is being supported by inflows into European stocks, and together with the current account situation, we should see a bit of upside in the euro,” he said.

Data from the ECB on Friday showed the euro zone’s current account surplus hit a record level in January, when portfolio investments rose to 16.9 billion euros.

“Investors are awaiting for further confirmation from the Fed on its rate path especially if U.S. data in the second quarter starts to look up,” said Geoffrey Yu, currency strategist at UBS. “For us, the dollar is a buy on dips.”

Fed officials, including Richard Fisher, James Bullard and Narayana Kocherlakota, are due to speak later on Friday and could offer more guidance on the U.S. central bank’s thinking.


The safe-haven yen and Swiss franc outperformed as traders grew cautious going into the weekend amid rising tension between Russia and the West following Moscow’s annexation of Crimea. Russian stocks fell sharply as investors digested the impact of U.S sanctions over the crisis in Ukraine.

EU leaders meeting in Brussels are also mulling wider economic sanctions.

The dollar fell 0.12 percent against the yen to 102.27 after topping out at 102.69 on Wednesday. The dollar was lower against the Swiss franc at 0.8819 francs.

Meanwhile, the Chinese yuan steadied after hitting a 13-month low with traders saying there were signs that the currency may be finding a base.

The yuan has shed more than 1.2 percent so far this week, a record weekly loss, after the central bank last weekend doubled the currency’s permitted trading range to 2 percent either side of the fixing.

Many saw this as a signal of official comfort with the currency’s recent losses, with the central bank keen to shake out hot money from the market.

Additional reporting by Anirban Nag in London; Editing by Leslie Adler

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