Dollar hits 2-mth low as U.S. economic momentum slows

Mon Apr 30, 2012 4:22am EDT

* Disappointing U.S. growth keeps dollar under pressure
    * Dollar hits 2-mth low against currency basket
    * Stuck near 2-mth low vs yen, euro supported


    By Anirban Nag 
    LONDON, April 30 (Reuters) - The dollar fell to a two-month
low against a basket of currencies on Monday, weighed down after
modest first quarter growth in the U.S. economy kept alive
chances of further monetary easing by the Federal Reserve. 
    The dollar is likely to come under more pressure if data,
including U.S. jobs numbers, this week disappoints. U.S. growth
cooled in the first quarter partly due to businesses cutting
back on investments, reinforcing the central bank's contention
that interest rates should be kept near zero through 2014.     
    The slowdown fuelled speculation that the Fed may eventually
launch another bond buying programme, or a third round of
quantitative easing. That would likely have a negative effect on
the dollar while giving riskier assets like stocks, commodities
and higher-yielding currencies like the Australian dollar
 a boost. 
    The greenback's woes even supported the euro despite
prospects of a prolonged slowdown in the euro zone as severe
austerity measures take a toll on economic activity across the
region. 
    Spain slipped back into recession as gross domestic product
shrank 0.3 percent in the January to March quarter, data showed
on Monday.  
    "The dollar is under pressure but the euro is by no means
out of the woods and the Spanish GDP data is a pointer," said
Peter Kinsella, currency strategist at Commerzbank, London. 
    "Besides, liquidity in the markets is a bit thin because of
holidays this week and this can make price movements a bit
exaggerated." 
    Markets in most of Europe will be shut on Tuesday for the
May Day holiday while Japan celebrates Golden Week holidays,
keeping trading on foreign exchange markets a bit subdued. 
    Against its basket of currencies, the dollar, fell to
78.638, its lowest level since March 1. 
    Against the yen, the dollar dropped to 80.08 at one point on
trading platform EBS, its lowest level since late February, and
last stood at 80.14 yen, down 0.2 percent from late U.S.
trade on Friday. 
    The euro was flat against the dollar at $1.3250, not far
from a near one-month high of $1.32706 struck on Friday with
traders citing buy stops above $1.3270, a break of which could
see it rise to $1.33. But any bounce to around those levels
could see more selling by bearish investors. 
    The common currency was down 0.3 percent against the yen
, dropping to 106.09 yen and hovering close to
two-week lows. Investors expect the yen to benefit from safe
haven  demand stemming from the euro zone's debt problems. 
    Business confidence in the region weakened sharply in April
and the ECB could scale back its economic outlook at its policy
meeting on Thursday. As such, the rising probability of further
easing by the European Central Bank in coming months could weigh
on the euro. 
     
    EYES ON U.S. DATA 
    The dollar is likely to take cues later this week from a
batch of U.S. economic data, including the Institute for Supply
Management's (ISM) gauges of the manufacturing and services
sectors, as well as jobs numbers.  
    Both will be fresh pointers to U.S. economic momentum which
has shown signs of flagging, suggesting the Fed may consider
easing monetary policy further in June. 
    "Clearly if we do get a weak ISM and a 125,000 (increase in
payrolls), this dollar weakness is going to continue," said Rob
Ryan, Singapore-based FX strategist for BNP Paribas, whose
economists are predicting an additional 125,000 U.S. jobs in
April. 
    Average market expectations are for a rise of 170,000.
  
    Market players said the dollar may fall further against the
yen in the near term given a drop in U.S. Treasury yields. The
dollar/yen exchange rate has a tight relationship with the
spreads between yields on U.S. Treasuries and Japanese
government bonds.      
    On Friday, the 10-year Treasury yield dipped to as low as
1.884 percent, its lowest level in nearly three
months.   
    Other factors that suggest the dollar may stay under
pressure against the yen include the existence of sizeable
bearish positions in the yen, a lack of interest in foreign bond
investment among Japanese investors, and the low probability of
yen-selling intervention, traders said.