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The euro has fallen 11 percent against the
dollar since the start of January, driven by the European
Central Bank's launch of a 1.1 trillion-euro quantitative easing
programme and the contrasting expectations the U.S. Federal
Reserve will start raising interest rates this year.
Highlighting the deflationary pressures the ECB is trying to
ward off, data released on Tuesday showed euro zone consumer
prices fell again in March, as expected. But the decline was the
smallest this year, indicating the price of goods and services
could start rising again soon.
On Tuesday, though, investors focused on worries over whether
Greece can secure financial aid before it runs out of cash in
three weeks, pushing the euro down as much as 1 percent to
$1.0713. Greece and its lenders had failed to reach an initial
deal on reforms, officials told Reuters earlier on Tuesday.
"If we're looking at what's the next trigger point for another
move lower for the euro ... I think it will be Greece," said Ian
Stannard, head of European FX strategy at Morgan Stanley in
London.
"If they (euro zone policymakers) have to put in place
additional measures to keep Greece in, such as capital controls,
then you have a situation where the monetary union itself is
under question."
Helped by its rise against the euro, the dollar was also on
track for its best quarter since 2008 against a basket of major
currencies. It gained 9 percent as the Fed moves towards raising
interest rates while most other major central banks are
loosening monetary policy.
The greenback got a further boost on Tuesday from month-end
rebalancing flows, traders said. The dollar index was up 0.6
percent at 98.511.
Stephen Gallo, European head of FX strategy at BMO Capital
Markets in London, said the euro/dollar pair would depend more
on U.S. data, specifically non-farm payrolls numbers due on
Friday.
"While the data in the euro zone have turned up and
forward-looking indicators have turned up, it's still a QE
currency and for the time being even if the data are a little
weaker in the U.S., the dollar is not a QE currency," he said.
"So there's going to be limited ability for the euro to rally
even as the economic data to turn upward.
(Editing by Catherine Evans, Larry King)
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