Reuters: US Dollar Report: FOREX-Dollar weakness keeps euro off 3-wk lows, pound gains on GDP

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FOREX-Dollar weakness keeps euro off 3-wk lows, pound gains on GDP Apr 25th 2013, 10:21 Thu Apr 25, 2013 6:21am EDT * Dollar index down 0.6 percent * Euro up, but ECB rate cut expectations may check gains * Sterling jumps to 2-month high vs dollar after UK GDP data By Anirban Nag LONDON, April 25 (Reuters) - The dollar fell against the euro and yen on Thursday, hurt by a batch of soft data that have raised concerns about the pace of economic recovery in the United States. In contrast, a better-than-expected performance by the British economy saw the pound jump more than 1 percent to a two-month high against the dollar. Sterling also hit a three-week peak versus the euro. The UK avoided recession in the first quarter, wrongfooting some bearish investors, including longer-term ones, who had expected a weak number that would push sterling lower. The data watered down expectations that the Bank of England will add to its asset buying programme to underpin the economy. While the euro gained against the dollar, it could run out of steam amid strong expectations of an interest rate cut by the European Central Bank next week. Senior sources involved in the deliberations say momentum is building for action to help a recession-hit euro zone economy. The euro was up 0.4 percent at $1.3063, moving away from a low of $1.2954 struck a day earlier after a German survey of business morale came in weaker than expected. There was support from signs that two months of political gridlock in Italy may be coming to an end. The dollar index, which measures it against a basket of currencies, fell 0.6 percent to 82.579, having risen to 83.190 on Wednesday, its highest since April 4. The dollar was down 0.4 percent to 99.10 yen. "We are dollar positive, but we recognise it will not be a straight line," said Neil Mellor, currency strategist at Bank of New York Mellon. "We are seeing some softness in the dollar and the data, and given what the Fed is saying, we expect it to stay as a funding currency." Orders for durable goods marked their biggest drop in seven months in March, the U.S. jobs market has remained sluggish and retail sales have been weak, factors which could keep the Federal Reserve's ultra-loose policy well in place. Gross domestic product data on Friday is expected to show the U.S. economy grew at a 3.0 percent annual pace in the first quarter, accelerating from a 0.4 percent rate in previous period, though economists predict that has slowed to around 1.5 percent in the current quarter. "Talk about a earlier than expected end to the Fed's quantitative easing program has certainly diminished in recent weeks, which has no doubt played a role in taking some of the wind out of the dollar's sails," said Westpac strategist Jonathan Cavenagh. "This should see the dollar index struggle to break through the 83.00 level in the near term." STERLING RALLIES Sterling rose 1.1 percent to $1.5448, its strongest since February 20, and more than a cent above where it was trading before the British GDP data was released. The euro fell to a three week low of 84.535 pence, down from around 85.27 pence beforehand. While worries about the British economy somewhat ease, concerns over a U.S. recovery have thwarted the dollar's rise past 100-yen - last seen in April 2009 - with options barriers also standing in the way. Data on Thursday from Japan's Ministry of Finance on weekly capital flows showed that Japanese investors remained net sellers of foreign bonds, unloading a net 862.6 billion yen in the week to April 20. Investors have been closely watching flows data in recent weeks for any indication that the Bank of Japan's massive stimulus announced on April 4 has pushed Japanese investors to seek higher returns overseas, which would usher in further yen weakness. Major Japanese life insurers have expressed caution about shifting funds into foreign bonds. But over a period of time, investment from large Japanese investors is likely to pick up and some of that could spill over to Europe. Link this Share this Digg this Email Reprints

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