Euro steadies, Aussie up after core inflation

[April 22, 2015]  By Patrick Graham

LONDON (Reuters) - The euro recovered some ground against the dollar on Wednesday in the absence of major news on Greece, while the Australian dollar rose after inflation data suggested an interest rate cut was not imminent.

In a subdued session for most major currencies, sterling gained around half a percent against a basket of its peers <=GBP> after Bank of England minutes that emphasized hopes for a further improvement in the UK economy over the next year.

The threat that Greece could fall out of the euro in a disagreement over the terms of financial aid from the rest of Europe has yet to show up to any great extent in the price of the single currency.

Many analysts and investors say a Greek exit from the euro prompted by Athens running out of funds in May or June could knock the euro swiftly below parity with the dollar. But for the moment the market still believes the ability of European policymakers to avert that scenario.

"Greece is certainly something that is continuing to be in focus given that we still don't have a bailout deal," said Phyllis Papadavid, Senior Global FX Strategist with BNP Paribas in London.

"The euro has really been stuck in a range for the past couple of weeks and I would put that down rather to the dollar being in a consolidation phase. Once we see U.S. data improve the bias is definitely for the dollar to gain further."

After some early gains in Europe, the euro was up 0.3 percent on the day at $1.0770 and 0.2 percent at 128.66 yen.

The Australian dollar <AUD=D4> was the day's biggest mover, gaining more than 1 percent to $0.7794 after data showed core inflation of 0.6 percent in the first quarter, higher than a forecast of 0.5 percent.

Signals from Australian central bank chief Glenn Stevens and minutes of the bank's April 7 meeting, all of which were seen as raising the prospect of an interest rate cut in May, have weighed on the currency this week.

"The case (for easing rates) hasn't disappeared... but it certainly reduces the chance a little bit more for May anyway," said David De Garis, a senior economist at National Australia Bank.

Against the yen the dollar stood at 119.63 yen, flat on the day and not far from a one-week high of 119.83 set overnight.

Sterling rose 0.9 percent to hit a five-week high above $1.50, helping push the dollar index down 0.4 percent to 97.81. That again cast doubt on whether there is much real concern about the currency's fate around British elections due in just two weeks, although traders said any further gains were unlikely.

"I can't see a massive sustained rally with so much political uncertainty," said one London-based spot trader. "The election concerns will keep sterling rallies limited."

(Additional reporting by Ian Chua and Anirban Nag; Editing by Hugh Lawson)

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