April 18, 2013 / 2:31 PM / in 5 years

FOREX-Euro edges higher, dollar slips after weak U.S. data

* Euro stays above chart support at $1.30

* Upcoming euro zone economic data key to euro outlook

* U.S. leading indicators, Philly Fed index unexpectedly weak

By Wanfeng Zhou

NEW YORK, April 18 (Reuters) - The euro edged higher against the dollar on Thursday, a day after posting its biggest daily drop in 10 months, but remained vulnerable on expectations the European Central Bank may soon lower interest rates.

The dollar slid against the yen after a gauge of future U.S. economic activity fell in March for the first time in seven months while growth in factory activity in the U.S. mid-Atlantic region unexpectedly slowed, adding to worries the recovery is weakening.

The euro lost 1.1 percent on Wednesday, its worst daily performance since June, after ECB Governing Council member Jens Weidmann, was quoted by the Wall Street Journal as saying the bank could ease further if economic data warrants it.

“The keys to the euro going forward should be squarely in the hands of euro zone data. A continued stream of lackluster data would strengthen the case for an ECB rate cut and weigh on the euro,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The euro rose 0.1 percent to $1.3036, finding strong support at the psychologically important $1.30 level.

Weidmann’s comments “by themselves are not new -- the ECB already shifted to an easing bias at the April meeting and said it will closely monitor all incoming information,” said Michael Sneyd, currency strategist at BNY Paribas in London.

“However, the fact that the comments were made by the most hawkish member of the Governing Council suggests the ECB is quite close to delivering a refi rate cut.”

Some analysts were skeptical about how negative this would be for the euro. Unlike Japan and the United States the ECB is not printing money via quantitative easing, which tends to weaken the currency. Some also believed a rate cut could be positive for the euro zone growth outlook.

The euro also remained vulnerable to euro zone political risks, with presidential elections in Italy beginning on Thursday and continued uncertainty over a bailout deal for Cyprus, despite Germany’s lower house of parliament voting in favour of it on Thursday.

Against the yen, the euro was little changed at 127.80 yen, holding below its recent three-year high of 131.11 yen.

The dollar fell 0.1 percent to 98.03 yen, and traders cited supporting bids around 97.60 yen.

Analysts expect further yen weakness and believed Japan will unlikely face much criticism of its aggressive monetary easing at a meeting of Group of 20 countries beginning on Thursday in Washington.

The dollar hit a four-year high of 99.94 yen last week, stalling just short of option barriers at the psychologically key 100 yen threshold.

“This is a longer-term move and therefore periods of correction are basically buying opportunities and that’s probably what we are in at the moment,” said Steve Barrow, head of G10 currency research at Standard Bank, who said 110 yen was a likely target for this year.

The BOJ’s radical monetary policy overhaul will pump about $1.4 trillion into the economy in less than two years, via a hefty bond-buying scheme that is expected to drive Japanese investors to look overseas in search of better yields.

But weekly data from the Japanese Ministry of Finance showed Japanese investors actually selling their holdings of foreign bonds over the last week. Still, analysts said low returns and a weakening yen would eventually drive money out of the country.

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