Reuters: US Dollar Report: FOREX-Euro hit by poor data, dovish Fed limits losses

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FOREX-Euro hit by poor data, dovish Fed limits losses Apr 26th 2012, 11:47 Thu Apr 26, 2012 7:47am EDT * Euro falls on weaker-than-expected sentiment data * Dollar seen subdued as Fed retains stimulus option * Yen investors eye BOJ policy meeting on Friday By Nia Williams LONDON, April 26 (Reuters) - The euro retreated from a three-week high against the dollar on Thursday as weak sentiment data increased c o ncerns a b out the euro zone, although losses were limited by the Federal Reserve pledging to keep its options open on more stimulus. Following a two-day policy meeting that finished on Wednesday Federal Reserve Chairman Ben Bernanke said policymakers were ready to launch another round of bond buying if the U.S. economy weakened. The statement weighed broadly on the dollar, pushing it to a three-week low against the euro of $1.3263, before the common currency slipped on data showing euro zone economic sentiment fell more than expected in April. The euro fell around 0.15 percent on the day to a session low of $1.32008, with traders reporting selling by hedge funds. Option expiries were also cited around $1.32. "This data is one of the reasons we are still seeing the euro look vulnerable, weakness is not just in the core of Europe but in the euro zone as a whole," said Ian Stannard, head of European FX strategy at Morgan Stanley. Peripheral bond yields also rose and with the threat of political instability from elections in France, Greece and the Netherlands hanging over the euro zone investors were keen to sell the common currency at higher levels. Still, the dollar struggled to push higher against most currencies following the Fed's statement, with the dollar index last flat on the day at 79.012. "When we look at the global environment it's probably a bit more positive following the Fed yesterday. The fact they are still maintaining a very dovish stance and not taking any risks with the recovery process will help some of the higher beta currencies," said Morgan Stanley's Stannard. The Fed reiterated that interest rates were unlikely to rise before late 2014. The Canadian dollar and the British pound hit seven-month highs against the U.S. currency, a s the central banks of Canada and Britain - in contrast to the Fed - are seen moving away from further stimulus. Sterling rose to a peak of $1.6208, while the U.S. dollar was last down 0.1 percent against the Canadian currency at C$0.9818, having earlier fallen as low as C$0.9806. The Fed's bond-buying programme is negative for the dollar as it boosts supply of the currency. "The key takeaway from the Fed is that they are still worried about unemployment and Bernanke will not raise rates until 2014. So the dollar stays soft," said Geoff Kendrick, currency strategist at Nomura. Fresh projections released by the Fed also showed that policymakers' support for a rate hike before 2014 had not increased from January, disappointing dollar bulls who had hoped for the possibility of an earlier exit from its loose monetary policy. BOJ EASING Nomura's Kendrick said the euro was unlikely to rise much but would not fall sharply because of the dollar's struggles. He recommended investors sell one-month euro/dollar option volatilities and go long on carry trades. With the Fed's dovish bias likely to curb large swings in euro/dollar, investors could instead fund positions in higher-yielding currencies by borrowing in dollars or yen, where rates are near zero and more stimulus is possible. The dollar also eased 0.5 percent against the yen to 80.84 yen, tracking a fall in 10-year U.S. Treasury yields following the lacklustre euro zone sentiment data. It stayed in a 80.30/81.80 yen range seen in the past few sessions ahead of the BOJ's policy meeting on Friday and the Japanese currency was seen as unlikely to make much headway ahead of the meeting. Sources familiar with the central bank's thinking said the BOJ is likely to ease monetary policy on Friday by boosting asset purchases by up to 10 trillion yen. Some traders said investors are already bearish on the yen as further BOJ easing has been talked about for weeks, leaving room for the yen to rebound. Others said the BOJ is likely to stay under pressure to ease even after Friday's meeting. "I think there is very little scope for the BOJ to spring a surprise by announcing a much larger amount than what the market is expecting," said Steve Barrow, head of G10 currency research at Standard Bank. "I don't expect the yen to react much if the BOJ announces what has already been pretty well telegraphed." Link this Share this Digg this Email Reprints

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