on weaker footing as Euro steadies
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[May 27, 2014]
By Patrick Graham
LONDON (Reuters) - The
dollar fell 0.2 percent against a basket of currencies
on Tuesday .DXY, extending weakness since the end of
last week after another retreat in U.S. bond yields.
A stronger dollar was one of many investment houses' major bets at
the start of this year but the U.S. economy has so far failed to
deliver the comprehensive pickup that would convince the Federal
Reserve it needs to raise dollar returns next year.
London-based analysts and traders said another big batch of U.S.
numbers were the best bet for a bigger market move on Tuesday after
a tight few days of trading, thinned out by U.S. and UK holiday
The euro held on to Monday's gains, largely the result of relief
that EU parliamentary elections did not deliver a knockout blow to
any of the bloc's more fragile, debt-ridden governments.
"More broadly, the dollar continues to struggle, and you can see
that in the US rate curve and rate differentials which haven't moved
in the dollarís favour," said Stephen Gallo, European head of FX
strategy with BMO in London.
U.S. two-year bond yields have fallen around 10 basis points in the
past month despite a blip higher at the end of last week, and are
less than half their British equivalents.
"If the data, starting with durables today, does not show the
beginning of a more encouraging bounce back from Q1, then the dollar
is going to continue to struggle," Gallo added.
A raft of U.S. confidence indicators as well as orders for durable
goods are due out later on Tuesday, starting at 1230 GMT.
The dollar lost 0.16 percent against the yen JPY=EBS to stand at
101.80 in early European trade. It fell almost 0.3 percent against
the Australian dollar AUD=D4 and 0.2 percent against sterling GBP=D4.
The common currency climbed to $1.3656 EUR=, up from a three-month
low of $1.3615 hit as markets began to digest the results of the
weekend's European elections.
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Traders said a squeeze in short euro positions had given the euro
some support overnight as it managed to stay above major technical
markers such as its 200-day average against the dollar and 100-day
average against the yen.
"It's a sad reflection of the lack of volatility in FX markets that
we now report 30 point moves as being newsworthy," said Sean Keane,
a director of Triple T Consulting and formerly a markets trader at
Prospects of policy action from the European Central Bank at its
June 5 meeting have weighed on the common currency in the past few
weeks and comments from ECB chief Mario Draghi on Monday reinforced
Draghi said the bank must be "particularly watchful" for any
negative price spiral in the euro zone, adding "more pre-emptive
action may be warranted" to guard against a drop in price
Reuters reported earlier this month that the ECB is preparing a
package of policy options for its June meeting. It includes cuts in
all its interest rates as well as targeted measures aimed at
boosting lending to smaller firms.
(Editing by John Stonestreet)
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