Dollar steadies before
Yellen and ADP data, sterling shines
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[July 02, 2014]
By Anirban Nag
LONDON (Reuters) - The
dollar held above a two-month low against a basket of
currencies on Wednesday, before the release of a survey
of the U.S. labour market and a speech by Federal
Reserve Chair Janet Yellen that is expected to be
The euro lost some steam on concern policy makers will intervene
verbally to keep the currency from strengthening. It fell to a 1
1/2-year low against the British pound, which was again lifted by
Sterling hit a six-year high against the dollar after
forecast-busting UK construction data and more evidence of an
upswing in the housing market. Both heightened expectations that the
Bank of England will tighten policy before the year's end.
The dollar index was steady at 79.85, not far from a low of 79.740
struck on Tuesday. The dollar eased slightly against the yen,
trading at 101.45 yen, not far from a six-week low of 101.235 yen
struck on Monday.
Investors will eye the ADP jobs-market survey due at 1215 GMT along
with Yellen's speech at 1500 GMT. Her recent dovish bias, especially
after the latest Federal Reserve meeting, has helped lead investors
to cut bets in favour of the dollar.
"At the time Yellen seemed determined to give as little support as
possible to rate hike speculation," said Esther Reichelt, currency
strategist at Commerzbank.
"This is unlikely to be any different today. But the market is
waiting for Fed signals and therefore already small hints can be
sufficient to affect the dollar."
The dollar's recent drop has helped the euro recover all of the
ground lost since the European Central Bank announced a new round of
monetary easing a month ago. The bank has its next policy meeting on
The euro eased slightly to $1.3662, having hit a six-week high of
$1.3701 on Tuesday. The euro has gained more than 1 percent in two
weeks, a move that is likely to frustrate the ECB. President Mario
Draghi recently warned that a strengthening currency amid low
inflation was cause for concern.
"A non-event ECB may help the euro squeeze higher, at least
initially. We would sell into any bounce, however, as the euro
short-term rates converge to zero and given that the Fed/ECB balance
sheet ratio may be close to topping out," said Valentin Marinov,
currency strategist at Citi.
"Verbal intervention by Draghi or indications of unsterilized asset
purchases as soon as the fourth-quarter could send the euro lower
against risk-correlated currencies and the pound."
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Sterling extended gains after data showed British construction
activity growing at its fastest in four months, beating forecasts.
The construction data is the latest in a series of forecast-beating
numbers showing that the UK's economic recovery is picking up steam.
The pound rose to $1.7180, its highest since October 2008. A return
to $1.7322 will mark its 50 percent retracement of the late-2007 to
early-2009 tumble from $2.1162 to $1.3500.
Sterling also held firm against the euro. The euro dropped to a 1
1/2-year low of 79.51 pence with traders citing an option barrier at
79.50 pence that was increasingly under threat.
"Since the ECB has committed itself to fighting disinflation
aggressively, it appears that irrespective of precisely when the BoE
chooses to start hiking interest rates that it will tighten well
before the ECB," said Jane Foley, senior currency strategist at
"We see scope for euro/sterling to move towards 78 pence by year end
and slowly onwards towards 77 on a 12-month view."
(Editing by Larry King)
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