Reuters: US Dollar Report: FOREX-Euro little changed vs dollar amid euro zone recovery

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FOREX-Euro little changed vs dollar amid euro zone recovery Aug 14th 2013, 12:52 Wed Aug 14, 2013 8:52am EDT * Euro rises briefly after euro zone lifts out of recession * Gains muted because of strengthening dollar * Dollar lifted by rising U.S. Treasury yields * U.S. PPI data prompts dollar to pare gains vs euro, fall vs yen NEW YORK, Aug 14 (Reuters) - The euro was little changed against the dollar on Wednesday after data showed the euro zone had emerged in the second quarter from its longest recession to date. The euro initially jumped on the news but elevated U.S. Treasury yields and growing expectations the Federal Reserve will begin to scale back stimulus as early as next month continued to bolster the dollar and so the euro zone single currency's gains faded. As the New York session began, the dollar's strength against the euro was blunted by a report that showed U.S. producer prices were flat in July, pointing to very little inflationary pressure, which could add to worries at the Fed that inflation is running too low. The dollar fell against the yen. "The recent weakness in the euro is not so much a function of any fundamental problem in the region but rather a reaction to the strengthening dollar as the market continues to price in the prospect of a taper (of Fed bond buying) in September," said Boris Schlossberg, managing director of foreign exchange at BK Asset Management in New York. The euro was last little changed at $1.3258, off an earlier high of $1.3278. Traders cited stop-loss sell orders below $1.3230 and a break there could see it slip to $1.3155/85. With stronger-than-expected growth in the currency bloc's largest economies, Germany and France, hauling the euro zone out of six consecutive quarters of contraction, analysts said a fragile recovery was probably taking hold. The euro zone economy grew 0.3 percent, beating the 0.2 percent forecast of economists in a Reuters poll, but this failed to push the euro much higher than after the numbers from the two big economies were released. With recovery in the euro zone still fragile and some of its peripheral economies still struggling, the European Central Bank is expected to keep rates at record lows for an extended period. By contrast, expectations the Fed will 'taper' its monthly $85 billion in bond buying from September were gaining momentum. Atlanta Fed President Dennis Lockhart on Tuesday said he could not rule out the Fed reducing stimulus from next month but added that U.S. economic performance was too mixed for the U.S. central bank to lay out a detailed plan. "Data in the U.S. will continue to improve and this will support Fed tapering plans and see interest rate differentials move in favor of the dollar," said Niels Christensen, FX strategist at Nordea in London, who sees the euro at $1.25 by year-end. The dollar was down and off Tuesday's one-week high against a basket of currencies hit after upbeat U.S. retail sales data that sent Treasury yields sharply higher. Ten-year Treasury yields last stood at 2.714 percent, near a two-year high. The dollar index edged down 0.03 percent to 81.742, having climbed more than 1 percent from its Aug. 8 trough. Traders reported steady corporate demand for dollars and said further gains would hinge on upcoming U.S. data. Attention now shifts to Thursday's release of U.S. industrial production and consumer inflation reports. However, the dollar fell against sterling as market participants brought forward expectations of a Bank of England interest rate hike on improving UK data and a surprise division among policymakers over the bank's rates guidance. The dollar was down 0.1 percent at 98.12 yen and traders said a move above 98.50 looked difficult in the near term. Link this Share this Digg this Email Reprints

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