Reuters: US Dollar Report: FOREX-Euro gyrates, USD spins lower

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FOREX-Euro gyrates, USD spins lower Apr 26th 2012, 20:30 Thu Apr 26, 2012 4:30pm EDT * Euro edges up, pending U.S. home sales raise risk appetite * Dollar seen subdued as Fed retains stimulus option * Yen investors eye BOJ policy meeting on Friday By Daniel Bases NEW YORK, April 26 (Reuters) - The euro rose versus the dollar in a volatile session on Thursday, boosted by signs of a pickup in the U.S. housing market that raised global risk appetite. The path upwards first included a sharp drop from a fresh three-week high after bearish data showed euro zone economic sentiment fell more than expected in April. This was due to increased pessimism in the industrial and service sectors as the economy sinks into recession.. The U.S. housing data, showing contracts to purchase previously owned U.S. homes increased solidly to a near two-year high in March, ironically turned out to be more help to the euro than the dollar. In addition to losses against the euro, the greenback fell to a one week low against the Japanese yen ahead of Friday's Bank of Japan monetary policy meeting. "The dollar's losses on the session were not dramatic by any stretch. To the extent that risk is still expanding, at least at the margins and using stocks as a proxy, this tends to be bearish for the dollar and supportive for risk currencies," said Robert Lynch head of currency strategy for the Americas at HSBC in New York. U.S. and European stock prices rose on Thursday. The euro rose 0.13 percent to $1.3239, just off the earlier three-week peak of $1.3263. The euro has been hemmed into a tight trading range between $1.3000 and $1.3435 since mid-January. It is currently struggling to make a convincing break above $1.3243, the 38.2 percent Fibonacci retracement level of its decline from and Oct. 27, 2011 high of $1.4247 to a Jan. 16 low of $1.2624. In contrast to the upbeat U.S. housing, U.S. initial weekly jobless claims data was weaker than expected. That undermined the greenback against the yen and euro. On Friday, investors get the first read on first quarter U.S. gross domestic product, with the Reuters poll of 72 economists showing an increase of 2.5 percent. "Because U.S. data was doing better during the period, the market might be a bit better braced for stronger data and more volatile if weaker," Lynch said. BERNANKE IMPACT 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. Bernanke's statement weighed broadly on the dollar as the Fed's bond-buying program is negative for the currency as it boosts supply. "The main catalyst for volatility this week was FOMC," said Kathy Lien, director of FX research at GFT in Jersey City, New Jersey. "Bernanke's dovishness drove the euro/dollar to a fresh 3 week high but the pair has struggled to extend its gains since then." 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. The Canadian dollar and the British pound hit seven-month highs against the U.S. currency, as 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 $1.6206, according to Reuters data, while the U.S. dollar fell as low as C$0.9802. The dollar also fell to a three-week low against the Swiss franc of 0.9054 francs. The dollar came off its lows against all three currencies, even managing a small increase on the Canadian Loonie. Fresh projections from the Fed showed policymakers' support for a rate hike before 2014 did not increased from January, disappointing dollar bulls who had hoped for the possibility of an earlier exit from its loose monetary policy. With the Fed's dovish bias investors may 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 weakened 0.36 percent against the yen to 80.85 yen, in part due to the poor U.S. jobless claims number. The dollar stayed in a 80.30-81.80 yen range seen in the past few sessions ahead of the BOJ's policy meeting on Friday. 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. Link this Share this Digg this Email Reprints

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