U.S. dollar falls to 1-mth low vs euro; sterling rises

By Gertrude Chavez-Dreyfuss

NEW YORK (BestGrowthStock) – The dollar dropped to a one-month low against the euro and a two-week trough versus sterling on Friday, as investors pared back large bearish bets on the two European currencies following strong euro zone economic data.

The biggest monthly increase on record in euro zone industrial output in January and an upward revision of figures for December also prompted a modest increase in risk appetite. The data gave traders further excuse to cover near-record euro short positions, or bets that the euro had room to fall, to prevent losses.

“What we’re seeing here is probably corrective strength in the euro and sterling. We had very large positions in these currencies so they are due to bounce anyway,” said Nick Bennenbroek, head of FX strategy at Wells Fargo in New York.

And we got some positive news on these currencies, which was a convenient excuse for these to gain.”

In the case of sterling, analysts also found reason to reduce substantial short trades on the currency — the largest so far since January 1999 — amid an improving political backdrop in Britain.

An online poll by Angus Reid Public Opinion showed Conservatives are well ahead of the ruling Labour Party, contrasting with other surveys showing the race too close to call. The main concern is that the UK election — expected in May — could result in a hung parliament, potentially hampering any incoming government’s efforts to cut the UK’s ballooning budget deficit.

In early afternoon New York trading, the euro was up 0.7 percent at $1.3756, hitting session peaks just shy of $1.38, the highest since February 11, according to Reuters data.

An unexpectedly strong U.S. February retail sales data briefly boosted the dollar versus the yen and added to optimism about the world’s biggest economy.

The dollar was flat at 90.54 yen, rising to a session peak after the retail sales data. The yen is down 1.8 percent versus the dollar so far this month.

Traders said the yen’s falls may be slowed by repatriation flows ahead of Japan’s financial year-end on March 31.

Such flows by Japanese firms may hit a record this year, helped by a tax break to encourage firms to repatriate profits.

Chances of a policy dove being named vice chair at the U.S. central bank also weighed on the dollar, analysts said. Such a move could slow the normalization of the Federal Reserve’s monetary policy.

San Francisco Federal Reserve Bank President Janet Yellen is a leading contender to be nominated to replace Donald Kohn as vice chairman of the U.S. Federal Reserve, the White House said on Friday.

Sterling, meanwhile, was up 0.8 percent against the dollar at $1.5184, off an earlier high of $1.5218.

The euro was down 0.3 percent against the pound at 90.54 pence.

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(Additional reporting by Nick Olivari; Editing by Andrew Hay)

U.S. dollar falls to 1-mth low vs euro; sterling rises