Reuters: US Dollar Report: FOREX-Dollar rallies on weak data, Fed disappointment

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FOREX-Dollar rallies on weak data, Fed disappointment Jun 21st 2012, 19:05 Thu Jun 21, 2012 3:05pm EDT * Weak global data fans risk aversion * Euro posts worst daily performance since March * Dollar hits 5-week high vs yen By Wanfeng Zhou NEW YORK, June 21 (Reuters) - The U.S. dollar posted its biggest rise in more than three months against major currencies on Thursday as weak economic data around the globe further unnerved investors disappointed with the Federal Reserve's decision to take only a modest step to bolster the economy. Currencies of commodity-linked economies including Australia, New Zealand and Canada sold off as investors dumped riskier investments and parked money in the relative safety of the dollar. U.S. jobless claims indicated the labor market is still struggling, while signs of softening in U.S. manufacturing and weakness in global output heightened the aversion to risk. The data comes a day after the U.S. central bank expanded a program to keep long-term borrowing costs down and said it was ready to do more if needed, but disappointed some investors who had hoped for another round of bond buying. "We are still dealing with the lack of any quantitative easing, which is putting a little bit of a drag on the markets," said Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank in New York. "The poor data puts further risk-off sentiment into the markets. You can see the commodity currencies are getting hit extra hard." The euro dropped as low as $1.2546 on Reuters data, far off Wednesday's high of $1.2744. It was last at $1.2562, down 1.1 percent, on track for its largest daily loss in more than three months. Adding to weakness in the euro was data showing Germany's private sector shrank in June for the second month running, with manufacturing activity hitting a three-year low. The weak euro zone data kept alive speculation the European Central Bank will cut interest rates soon, offering investors a fresh excuse to sell the euro. The euro's intraday bias, however, remained neutral, ActionForex analysts said. The rebound from a nearly two-year low of $1.2287 hit in early June was viewed as a correction, and with $1.2435 minor support intact, a further rally could still be seen, they added. DOLLAR UPSIDE The dollar index, a measure of the greenback's performance against a basket of currencies, rose 0.8 percent to 82.241, on track for its best day since March 9. "We've come back to the situation where the data was weak and concerning and we have anti-risk sentiment going on, which tends to benefit the dollar," said Tom Fitzpatrick, chief technical strategist at Citigroup. Still, analysts said the dollar's outlook was clouded, with more players likely to position for fresh Fed stimulus after the central bank downgraded its U.S. growth forecast. "We maintain our view that Fed easing could weaken the U.S. dollar sharply in the weeks ahead," BNP Paribas wrote to clients. "While euro/dollar could be taken higher for the ride, we think the commodity bloc (AUD, NZD and CAD) will continue to benefit most." A Reuters poll after the Fed decision showed that Wall Street firms still see a 50 percent chance of another round of quantitative easing. Some analysts said the Fed was probably saving ammunition given the risk the euro zone crisis could deteriorate in coming weeks as borrowing costs in peripheral countries remain high. Spain's borrowing hit a euro-era high at an auction on Thursday. The country's government officials said a formal request for bank support will be made in the next few days and the details finalized before the end of July. . Against the yen, the dollar rose as high as 80.32 yen , its highest level since mid-May. It was last at 80.29, up 1 percent. The Australian dollar fell 1.4 percent to $1.0043, retreating from a seven-week high of $1.0225 hit on Wednesday. The New Zealand dollar fell 1.1 percent to $0.7873. Link this Share this Digg this Email Reprints

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