The dollar languished at a six-week low against a basket of major currencies on Monday, struggling to get over yet more disappointing U.S. economic news that stood in contrast to better data out of the euro zone and China.
Following the release of weaker-than-expected Japanese gross domestic product data, the dollar slipped 0.2 percent to 101.60 yen, pulling further away from its recent peak above 102.70 yen touched last week.
“The yen gained from typical ‘risk off’ trades that occur in the wake of unimpressive Japan data,” said Sho Aoyama, senior market analyst at Mizuho Securities.
Japan’s economy grew less than expected in the fourth quarter of last year as consumer spending, business investment and exports disappointed, in a worrying sign of waning momentum before a planned sales tax increase.
“The dollar is likely to remain under pressure as participants look to more data, such as U.S. GDP, for further signs of weakness in the U.S. economy, but persistent expectations towards further easing by the Bank of Japan will limit its fall against the yen,” Aoyama added.
The dollar index traded at 80.020, having slumped to 79.951 .DXY – a low not seen since January 1.
The euro touched a three-week high of $1.3723.
Data on Friday showed both Germany and France grew slightly faster than expected in the fourth quarter, pushing the euro zone’s recovery up a gear.
U.S. manufacturing output, by contrast, unexpectedly fell in January but that outcome was again blamed on bad weather.
The run of soft U.S. data seemed to have affected the market’s expectation regarding the Federal Reserve’s tapering path, analysts at Barclays Capital wrote in a note to clients.
“The market could continue to price in a small possibility of Fed halting the tapering while the U.S. data remains soft,” they said.
“But we think the Fed will likely look through the near-term softness in the data and continue to reduce asset purchases by $10 billion in March, as suggested by Fed Chair Yellen’s remarks during her testimony to the Congress, which should be USD supportive.”
The latest data showed currency speculators indeed pared bets in favor of the U.S. dollar in the week ended February 11.
Still, it was the 15th straight week in which speculators held net long positions in the greenback, reflecting a wider belief that the Fed will probably continue to wind back its extraordinary policy stimulus this year.
Commodity currencies such as the Australian dollar were also in favor after Chinese lending data on Saturday suggested the world’s second-biggest economy may not be cooling as much as feared.
Analysts, though, warned that the data could be distorted by the Lunar New Year holidays in January. China is the biggest export market for Australia and New Zealand.
The Australian dollar hit a fresh one-month high of $0.9070, before relinquishing a bit of ground to last stand at $0.9053.
Sterling retained its bullish momentum on expectations the Bank of England could be the first major central bank to hike interest rates. The pound hit $1.6823 on Monday, its highest since November 2009.
Market participants said another currency that benefited from early rate hike expectations was the New Zealand dollar, which scaled a one-month peak of $0.8392.
Source : Reuters