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Traders said speculators have been trimming
short positions in the euro this week and the trend was likely
to support the currency at lower levels. On the other hand, the
dollar index held near four-month lows amid uncertainty about
when the Federal Reserve would start raising U.S. interest
rates.
The euro fell 0.5 percent to $1.1355, off Thursday's three-month
high of $1.1445 but still 9 percent higher than the 12-year low
of $1.0457 reached on March 16. That was the day the European
Central Bank embarked on its one trillion-euro bond-buying
program, to which President Mario Draghi reiterated his
commitment on Thursday.
"Draghi reaffirmed his commitment to QE yesterday and we think
the corrective course for the euro has run its course," said
Manuel Oliveri FX strategist at Credit Agricole. "There isn't
much of an upside left."
Part of the reason for the euro's rebound has been improved euro
zone data and rising inflation expectations. In contrast,
first-quarter growth in the United States disappointed dollar
bulls. Soft retail sales in April has left investors wondering
if the Fed would raise rates later this year.
More importantly, the recent global bond market rout narrowed
the yield gap between Bunds and U.S. Treasuries, supporting the
euro. The gap between 10-year Bunds and Treasuries has shrunk to
around 150 basis points, from around 180 bps about a month ago,
making the euro more attractive to investors.
German Bund yields have stopped climbing - they were lower on
Friday - but the gap remained at 153 basis points.
Traders said upcoming U.S. data will be the main driver for the
dollar. U.S. data due later on Friday include industrial
production for April and the University of Michigan's
preliminary May reading on consumer sentiment.
"Given the markets' sensitivity to the strength of the US
activity rebound in the second quarter, even relatively minor
data releases are having disproportionate price impacts," said
Adam Cole, head of G10 FX strategy at RBC Capital.
(additional reporting by Tomo Uetake; Editing by Dominic Evans,
Larry King)
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