Euro hit by poor data, dovish Fed limits losses

Thu Apr 26, 2012 9:23am EDT
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NEW YORK (Reuters) - The euro retreated from a three-week high against the dollar on Thursday as weak sentiment data increased concerns about the economic outlook for the euro zone, though losses were limited by the Federal Reserve pledging to be open on more stimulus.

Following a two-day policy meeting that finished on Wednesday Federal Reserve Chairman Ben Bernanke said policymakers were ready to launch another round of bond buying if the U.S. economy weakened.

The statement weighed broadly on the dollar, pushing it to a three-week low against the euro of $1.3263, before the common currency slipped on data showing euro zone economic sentiment fell more than expected in April.

U.S. initial weekly jobless claims showing a weaker pace of healing in the labor market sent the dollar to a one-week low against the yen and the euro to a session low against the dollar.

"The main catalyst for volatility this week was FOMC," said Kathy Lien, director of FX research at GFT in Jersey City, New Jersey. "Bernanke's dovishness drove the euro/dollar to a fresh 3 week high but the pair has struggled to extend its gains since then."

The euro was last down 0.1 percent on the day at $1.3213 after falling to a session low of $1.3199, with traders reporting selling by hedge funds. Option expiries were also cited around $1.32.

Peripheral bond yields rose and with the threat of political instability from elections in France, Greece and the Netherlands hanging over the euro zone, investors were keen to sell the common currency at higher levels.

Still, the dollar struggled to push higher against most currencies following the Fed's statement. The U.S. central bank reiterated that interest rates were unlikely to rise before late 2014.

"When we look at the global environment it's probably a bit more positive following the Fed yesterday. The fact they are still maintaining a very dovish stance and not taking any risks with the recovery process will help some of the higher beta currencies," said Ian Stannard, head of European FX strategy at Morgan Stanley in London.   Continued...

Euro banknotes are placed on a currency graph in this picture illustration taken January 22, 2011. REUTERS/Dado Ruvic