fade for dollar rally, Kiwi jumps
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[July 08, 2014]
By Patrick Graham
LONDON (Reuters) - The
outlook for monetary policy in the second half of 2014
dominated major currency markets on Tuesday, with the
dollar's impetus from surprisingly strong U.S. jobs data
last week already fading.
Fitch Ratings' upping of its outlook for New Zealand's debt rating
drove a jump for the kiwi dollar, while poorer UK output numbers
gave investors a chance to claim some of their profits on the past
month's rally in sterling.
But as the market drifts into a summer lull, the balance of monetary
policy on either side of the Atlantic is dominating debate and seen
as the key to ending a long period of very low volatility and
The jump in new U.S. hiring, reported before the July 4 holiday, had
provided a brief fillip to those still hoping that a surge in the
dollar, widely forecast at the start of this year by the big
investment banks, will finally materialise.
The U.S. currency eased against the euro on Monday and was
struggling to make ground in Europe on Tuesday in the face of the
latest signs of German opposition to more policy easing by the
European Central Bank.
"We were looking for the dollar to struggle in the first half of the
year, but as we head into H2 we have revised our forecasts to extend
that theme into the third quarter," said Adam Cole, head of G10
currency strategy with RBC in London.
"Eventually we expect the USD trend to turn, and by 2015, we are
looking for the kind of broad-based USD strength that the consensus
was expecting in 2014."
The dollar edged higher against the euro, with the single currency
trading 0.1 percent lower at $1.3591. Against a basket of currencies
it was 0.1 percent higher at 80.28. It eased 0.1 percent to 101.775
Germany's hugely positive balance of trade is one underlying reason
for the euro's net five-cent gain against the dollar in the past 12
months, and it recorded a record trade surplus of almost 19 billion
euros in May.
But broader signs of the strength of the euro zone's biggest economy
were less positive - both exports and imports fell sharply.
Airbus chief Fabrice Bregier's call for a 10 percent devaluation of
the euro underlined the pressure on the European Central Bank to
keep the supply of euros very high or even do more to support growth
in months to come.
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"The German data has been a bit disappointing and that is pointing
the way to more pressure on the ECB to move again but I think people
are still scratching their heads," said Rabobank strategist Jane
"There is a difficulty for the ECB in pushing the euro lower as long
as the Fed is not clearly on the way to higher rates."
Fed policymakers Jeffrey Lacker and Narayana Kocherlakota are both
due to speak later on Tuesday and will be eyed for signs of a shift
towards a more hawkish bent following the jobs numbers.
For the ECB, the currency story also complicates its battle to keep
euro zone inflation out of negative territory and closer to 2
percent, although its president, Mario Draghi, has said that the
currency's 15 percent rise from 2012 lows has pushed down inflation
by only 0.4 percentage points.
The New Zealand dollar jumped to an almost 3-year high against the
greenback after Fitch affirmed its current ratings but upgraded its
outlook to positive, citing fiscal consolidation and improving
Dealers said the move, peaking at $0.8806, had taken out a number of
option barriers at $0.8800. The kiwi, up almost nine percent since
January on the back of steady increases in domestic interest rates,
retreated thereafter but was still trading around a third of a
percent higher at $0.8786.
(Editing by Hugh Lawson)
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