WORLD FOREX: Euro Holds Gains Vs Dollar




The euro held onto recent gains against the dollar in Asian trading Tuesday on expectations that euro-zone economic data due later in the global day could reinforce the growing view that the European Central Bank will raise its key interest rate sooner than its U.S. counterpart.

Meanwhile, the greenback got a lift against the yen as buoyant equity markets and a retreat in oil prices prodded investors and traders to dump the safe-haven yen against higher yielding currencies like the euro, sterling and the Australian dollar. Japanese importers also stepped in to pick up the dollar against the yen during the morning, dealers said.

Traders are keeping a close eye on euro-zone inflation data due at 1000 GMT for clues on likely monetary policy direction ahead of the ECB's policy-setting meeting on Thursday. The consumer price index for February is expected to rise 2.4% from a year earlier, according to the median forecast of economists surveyed by Dow Jones Newswires.

Another key event is testimony by U.S. Federal Reserve Chairman Ben Bernanke before the U.S. Senate Banking Committee at 1500 GMT.

If the euro-zone inflation data come in stronger-than-expected, "that would mean it will open the way for the ECB to prepare for a rate hike as early as June," Kazuo Kitazawa, FX sales director at Credit Suisse Securities in Japan. On the other hand, "Mr. Bernanke will probably take a positive stance to maintain the present quantitative credit easing, " Kitazawa said, adding "this won't work in favor of the dollar".

For the rest of the global trading day, Kitazawa expects the euro to stay within a $1.3750-$1.3850 range, with no sharper rises expected unless the inflation data deviate from the forecast. At 0450 GMT, the euro was at $1.3806 compared with $1.3805 late Monday in New York, according to trading platform EBS via CQG. The dollar was at Y82.16 from Y81.79, while the euro was at Y113.43 from Y112.90.

Bank of Japan Gov. Masaaki Shirakawa said the strong yen is "not working as an additional risk factor" for the economy, with business sentiment remaining strong and the currency's strength curbing import costs. In an interview with The Wall Street Journal and Dow Jones Newswires, Shirakawa said he won't rule out further easing if needed, saying the BOJ is assessing the effectiveness of its bank lending facility and may look to expand it.

Masamichi Adachi, economist at J.P. Morgan Securities Japan said, "The BOJ appears a little bit less concerned on the pressures to the downside" as data show the export-driven recovery is trickling through to improvement in the jobs market.

"They're deliberately balancing concerns over oil price rises and other negatives with pressure from the outside to ease further. They can stay on hold and wait to see how conditions develop," Adachi added.

The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 76.913 from about 76.898.

Meanwhile, the Australian dollar weakened against the dollar after the Reserve Bank of Australia signaled it is unlikely to hike interest rates in the coming months. RBA Governor Glenn Stevens said in a statement after a regular policy-setting meeting, at which the central bank left its cash rate target at 4.75%, that inflation is currently "consistent with the medium-term objective of monetary policy."

The Australian dollar dropped to $1.0160 at 0450 GMT following the statement, down from an earlier high of $1.0199.

Yuzo Sakai, manager of FX business promotion at Tokyo Forex & Ueda Harlow, said that the selling came as "the RBA policy statement fell a bit short of expectations for a more hawkish tone."