April 30, 2013 / 11:16 AM / 5 years ago

FOREX-Euro slips on poor data but dollar weakness limits fall

* Euro dips, but dollar’s struggles lend some support

* Dollar index hovers near lowest in nearly two weeks

* Recent weakness of U.S. data weighs on dollar

By Anooja Debnath

LONDON, April 30 (Reuters) - The euro fell on Tuesday after weak economic data gave further weight to expectations of an interest rate cut by the European Central Bank later this week.

Strategists however said losses in the euro are likely to be limited on prospects the U.S. Federal Reserve’s ultra-loose policy will be maintained and weigh on the dollar.

The single currency slipped after data showed inflation in the euro zone had fallen to a three-year low while unemployment rose to a record high.

The data followed German retail sales which fell for the second month running in March, confounding forecasts of a rise and inflation figures which hit its lowest in more than two years.

The euro was down 0.2 percent at $1.3077 with traders citing offers layered above $1.3110 and $1.3150 and chart resistance at its 100-day moving average of $1.3158. Near-term support was at the 55-day moving average of $1.3044.

Corporate accounts were cited as buyers of the euro on dips, limiting its losses post the data.

“The euro zone unemployment rate was at a disappointingly high level which certainly is of concern... this is a further argument for the ECB to cut interest rates,” said Ulrich Leuchtmann, head of FX research at Commerzbank.

Some analysts said while a rate cut could see the euro initially fall, announcing further easing measures would be interpreted as a positive move by the central bank and this could lend the euro some support.

“If the ECB were to resort to a refinancing rate cut on Thursday and announce non-standard measures to boost credit flow, we could see a bounce in the euro. But anything above $1.32 is a sell,” said Jeremy Stretch, currency strategist at CIBC World Markets.

He added that dollar weakness was checking a sharper fall in the euro.

A slide in the two-year Treasury yield to a nine-month low of 0.21 percent weighed on the U.S. currency.

The dollar index, which measures its value against a basket of six major currencies, last traded at 82.165. It hit a trough of 82.035 on Monday, its lowest since April 17.

The Fed kicks off its two-day policy meeting on Tuesday and investors are watching to see if a sluggish recovery and slowing inflation could not only end talk of tapering its bond-buying but push the central bank into buying more assets.

“We are currently seeing significant dollar weakness... reason for this is mainly speculation on further Fed quantitative easing policy,” Leuchtmann said.

“The view that the Fed would scale down QE is coming more and more under question due to poor U.S. data.”

The dollar was down 0.4 percent on the day against the yen at 97.40 yen, not far from 97.35 yen hit on Monday, its lowest level in almost two weeks.

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