May 22, 2014 / 8:41 AM / 5 years ago

Dollar better bid after data, euro hobbled by rate cut view

SYDNEY (Reuters) - The dollar hovered at one-week highs against the yen and held its ground on the euro early on Friday, having drifted up broadly after promising U.S. housing and factory activity data gave Treasury yields a bit of a lift.

Euro notes are pictured at a bank in this photo illustration taken in Seoul June 18, 2012. REUTERS/Lee Jae-Won

The dollar index .DXY last traded at 80.228 after edging up 0.2 percent on Thursday. Against the yen, the greenback stood at 101.79, not far from the overnight high of 101.82 and well off a 3-1/2 month trough of 100.80 plumbed on Wednesday.

The euro eased to $1.3654 after suffering a 0.2 percent decline. It was within sight of a three-month low of $1.3634 set on Wednesday.

In a lackluster session, investors found an excuse to buy greenback after data showed U.S. home resales rose in April and the supply of properties on the market hit its highest level in nearly two years, promising signs for the housing market.

Financial data firm Markit, meanwhile, said its preliminary or “flash” U.S. Manufacturing Purchasing Managers Index rose to 56.2 in May from 55.4 in April. Economists polled by Reuters expected a reading of 55.5.

U.S. Treasury yields edged up on the data with the benchmark yield briefly hitting a 1-1/2 week high of 2.57 percent.

In Europe, surveys showed a slight softening in the strong pace of growth in the private sector with France’s composite PMI slipping back below the 50 mark after just two months in growth territory.

The composite output price index held steady at April’s eight-month low as firms discounted prices for the 26th month running, an outcome that should keep the European Central Bank (ECB) worried about persistently low inflation.

“We continue to run short EURGBP, short EURCAD and short EURNOK recommendations ahead of the likely easing from the ECB in June,” analysts at BNP Paribas wrote in a note to clients.

Analysts polled by Reuters this week expect the ECB will cut its main interest rate and push the deposit rate below zero next month in an attempt to stop inflation from slowing any further.

Also keeping euro bulls at bay is some worry that the EU elections could destabilize some euro zone governments at home. In Italy, for example, a poor result for Prime Minister Matteo Renzi’s party could weaken his drive for swift reforms that he promised when he took power in a party coup.

The bulk of countries vote on Sunday, when the trend towards the political extremes may become clearer. Consolidated results, including the allotment of seats in the parliament, will be announced at around 2100 GMT on Sunday.

In Asia, investors will be keeping an eye on developments in Thailand amid a dearth of major economic data.

On Thursday, Thailand’s army chief seized control of the government two days after he declared martial law, saying the military had to restore order and push through reforms after six months of turmoil.

The Thai baht had weakened on the news, slipping to around 32.6 per U.S. dollar on Thursday.

Editing by Shri Navaratnam

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