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Dollar steady near 7-wk high vs euro, data eyed

LONDON - The dollar held near a seven-week high against the euro on Thursday as investors awaited a slew of US data that could further cool expectations for the Federal Reserve to trim interest rates later in the year.

Revised US data on first-quarter growth at 1230 GMT is forecast to show a downward revision from the initial estimate, but the May non-farm payrolls report on Friday is expected to show a rise, while a snapshot of manufacturing activity, also due on Friday, is seen holding up well in May.

The dollar has clawed back from a record low hit against the euro in April and a 26-year low against the pound as worries about the US economy’s health have eased, reducing speculation of lower rates that would erode the greenback’s yield appeal.

“There have been signs of recovery in the economic indicators, despite the ongoing weakness in the housing market,” said Kamal Sharma, currency strategist at Bank of America.

“The focus today will be on the economic data slate and if we see a sub-one percent rate in GDP.”

The euro was steady from the US close at $1.3436 EUR at 0823 GMT, after falling below $1.3410 on Wednesday to its weakest since mid-April. A break of $1.34 would likely trigger a deeper pull-back in the euro, traders said.

The dollar was also steady against the yen at 121.60 yen JPY close to a 3-1/2-month high near 121.90 yen struck last week.

The euro was unchanged against the yen at 163.38 yen EURJPY, within one yen of recent record highs.

France’s consumer confidence index rose in May and producer prices gained in April, data showed on Thursday, shoring up expectations for a euro zone rate rise next week from the current 3.75 percent.

However, in Germany, the May jobless total unexpectedly rose by 3,000 on a seasonally-adjusted basis, giving an unemployment rate of 9.2 percent.

European Central Bank governing council member Klaus Liebscher speaks in Vienna.

Euro zone data due on Thursday includes the flash estimate of harmonised consumer price inflation for May at 0900 GMT, forecast at an annual rate of 1.9 percent, unchanged from April.

“Unless we get a move above two percent, I don’t think it’s going to be a market mover,” said Sharma.

Fed minutes

Minutes from the Fed’s May meeting released on Wednesday showed that policymakers felt inflation was their main worry and that growth should recover as the year drags on.

The Fed has held rates steady for nearly a year at 5.25 percent even as investors had expected the housing market troubles to lead to a rate cut, and with the European Central Bank and Bank of England seen raising rates further.

Analysts said investors remained nervous about the outlook for equity markets and the potential for another rush out of risky assets that could prompt an unwinding of carry trades, in which low-yielding currencies such as the yen are used to fund purchases of higher-yielding currencies and assets.

“I expect the dollar to be relatively well-supported, and if risk aversion sets in you will see the dollar gaining ground against sterling, the Aussie and currencies like that,” said Sharada Selvanathan, a currency strategist at BNP Paribas in Singapore.