US dollar on defensive after soft data, euro finds reprieve for now

[TOKYO] The dollar was on the defensive on Friday after soft US economic data halted its surge against peers such as the yen and euro while the market awaited further developments in Greek debt negotiations.

The dollar index was at 94.185 after going to a one-week low of 93.979 overnight. The index had reached a two-week peak of 95.115 on Wednesday.

The dollar traded at 119.04 yen, knocked down from a five-week high of 120.48 touched on Wednesday after last week's robust US non-farm payrolls revived prospects for a mid-year rate hike by the Federal Reserve.

Economic optimism was slightly cooled, however, by Thursday's weaker-than-expected US retail sales and jobless claims. US debt yields slid in wake of the data, taking support away from the greenback. "The slide showed that dollar/yen had become top-heavy and the market was simply unable to sustain earlier gains. The dollar still looks well supported, after all US fundamentals, as non-farm payrolls proved, remain relatively strong," said Koji Fukaya, president of FPG Securities in Tokyo. "The global environment, on the other hand, does not fully support a 'risk on' mood and this impedes one-way gains by the dollar." The dollar going on the defensive gave the battered euro some reprieve. The common currency was steady at US$1.1402 having gained 0.6 per cent overnight and putting some distance between a recent trough of US$1.1270 brushed at the start of the week.

Germany, France, Russia and Ukraine agreeing late on Thursday to a ceasefire between Ukrainian forces and Russian-backed separatists also shored up the euro.

Another small break for the euro came when the European Central Bank further raised the cap on emergency funding for Greek banks by about 5 billion euros to 65 billion euros.

Still, the euro is expected to remain shaky and volatile as negotiations for a bailout deal between Greece and its creditors continue with no clear end in sight.

Unable to reach an understanding this week, Greece and euro zone finance ministers will attempt again on Monday to bridge their differences.

Sterling remained bullish after the Bank of England on Thursday said inflation would return to its 2 per cent target, keeping alive chances it will hike rates early in 2016.

The pound traded within reach of a six-week peak of US$1.5415 reached overnight.

REUTERS