* Euro flat, pending U.S. home sales raise risk appetite
* Dollar seen subdued as Fed retains stimulus option
* Yen investors eye BOJ policy meeting on Friday
NEW YORK, April 26 (Reuters) – The euro was little changed
against the dollar in a volatile session o n T hursday which saw
the single currency swing from a three-week high to losses and
then higher after signs of a pickup in U.S. housing raised risk
appetite.
Contracts to purchase previously owned U.S. homes increased
solidly to a near two-year high in March, data showed.
The report offset bearishness on the euro after a report
showed euro zone economic sentiment fell more than expected in
April, driven by more pessimistic industry and services sectors,
as the economy sinks into recession..
“The pending home sales probably did play a hand in muting
some of the negativity from high joblessness and low consumer
confidence,” said said Alexander Chepurko, foreign exchange
analyst at Forex Club in New York. “But mostly it’s a weakening
U.S. dollar that’s giving the euro/dollar help, after
yesterday’s Fed proclamation that they are prepared to take
additional easing steps even in the face of slightly positive
growth.”
The euro was last little changed at $1.3222, halfway between
the earlier three-week peak of $1.3263 and the session low of
$1.3197.
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.
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
the three-week low against the euro.
“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.”
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.
But 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.
“The fact (the Fed is ) 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.
The Canadian dollar and the British pound hit
seven-month highs against the U.S. currency, a s the central
banks of Canada and Britain – in contrast to the Fed – are seen
moving away from further stimulus.
Sterling rose to a peak of $1.6206, according to Reuters
data, while the U.S. dollar fell as low as C$0.9802. The dollar
also fell to a three-week low against the Swiss franc of 0.9054
francs.
The Fed’s bond-buying programme is negative for the dollar
as it boosts supply of the currency.
Fresh projections released by the Fed also showed that
policymakers’ support for a rate hike before 2014 had not
increased from January, disappointing dollar bulls who had hoped
for the possibility of an earlier exit from its loose monetary
policy.
With the Fed’s dovish bias investors may instead fund
positions in higher-yielding currencies by borrowing in dollars
or yen, where rates are near zero and more stimulus is possible.
The dollar eased 0.5 percent against the yen to 80.85 yen
, in part because of the poor U.S. jobless claims number.
“This was a disappointing number and offers more evidence
that the labor market continues to lose traction,” said Joe
Manimbo, senior market analyst at Western Union Business
Solutions in Washington. “For the dollar, this should add to the
risk-off feel in the markets.”
The dollar stayed in a 80.30-81.80 yen range seen in the
past few sessions ahead of the BOJ’s policy meeting on Friday.
The Japanese currency was seen as unlikely to make much headway
ahead of the meeting.
Sources familiar with the central bank’s thinking said the
BOJ is likely to ease monetary policy o n Friday by boosting
asset purchases by up to 10 trillion yen.
Some traders said investors are already bearish on the yen
as further BOJ easing has been talked about for weeks, leaving
room for the yen to rebound. Others said the BOJ is likely to
stay under pressure to ease even after Friday’s meeting.
