LONDON, Feb 18 - The euro rose to a fresh record above $1.29 on Wednesday as upbeat U.S. data this week failed to alter investors' bearish view of the greenback and sent it to new multi-year lows against higher yielding currencies. The Australian dollar rose to a seven-year high above US$0.80 and sterling hit a fresh 11-year peak, leading the way against the dollar after encouraging U.S. capital inflow data on Tuesday proved insufficient to banish concerns about U.S. twin budget and current account deficits and low interest rates.
Receding expectations that the European Central Bank (ECB) would intervene in the market or cut interest rates also emboldened traders to test the European authorities' resolve to curb the euro's strength, traders said. "We had good U.S. data yesterday but the dollar didn't gain enough on it and at a certain point, dollar optimists threw in the towel," said Peter Fontaine, market strategist at KBC in Brussels. "You see at every euro dip there are new buyers, both speculative and corporates. People want to sell U.S. dollars against the Aussie, sterling and euro, so it's clear people are going for the currencies with the biggest rate differential." The euro peaked at $1.2927 as European trade opened but had trimmed its gains by 0850 GMT to stand half a percent up on the day at $1.2900. It has gained 3.5 percent since the start of the month.
Sterling surged to $1.9128, bringing the $2.00 level into view. Britain's key interest rate stands at 4.0 percent while the U.S. federal funds rate target is 1.0 percent. Traders were keeping a close eye on the minutes of the Bank of England's February Monetary Policy Committee meeting, due for release at 0930 GMT, for any clues on further rate rises ahead.
YEN STEADY
The yen failed to gain from surprisingly robust Japanese economic growth data as traders kept cautious amid suspicions that Japanese authorities stepped into the market on Wednesday to curb their currency's strength. Government data showed the Japanese economy expanded by 1.7 percent in October-December from the previous quarter, beating economists' expectations for an expansion of 1.1 percent. On an annualised basis, GDP grew a real 7.0 percent, well ahead of a 4.0 percent expansion in the United States in the same period. "The GDP data was much stronger than the market had expected, but the market is having difficulty selling the dollar versus the yen on spreading talk about dollar bid orders near 105.60 yen," said Yoshihiro Nomura, forex section manager at Trust & Custody Services Bank in Tokyo. The dollar was trading around 105.55/60 yen, virtually unchanged from Tuesday's late New York trading. Analysts said the data would likely give a boost to the yen in the long term and Japan may find it hard to justify stepping in to sell the yen. "The government may find it difficult to intervene in the currency market, given its case for such action -- that the yen should not strengthen when economic fundamentals are weak -- could be weakened," said Norihiro Fujito, senior investment strategist at Mitsubishi Securities.
Still, Finance Minister Sadakazu Tanigaki said on Wednesday that it was too early to say that Japan had dug itself out of deflation, adding that the government had not changed its policy of intervening in the market to stem volatility. In Germany, producer prices rose by the lowest annual rate in over a year in January, just 0.2 percent, as the euro's strength and base effects dampened prices. //www.forbes.com