NEW YORK (Reuters) – The euro fell on Thursday as the euro zone reported weakening growth, while the dollar touched a two-month high against the yen after Japan’s finance minister said currency intervention was still a policy option.
The data showed the euro zone only just emerged from recession in the third quarter with growth of 0.1 percent, dragged down by a contraction in France.
“The growth outlook for the U.S. and Eurozone is beginning to diverge, with the third quarter prints suggesting there is too little optimism priced in for the U.S. and too much for Europe,” said Camilla Sutton, chief FX strategist at Scotiabank in Toronto. “This is an important shift and one that is likely to support the U.S. Dollar.”
The euro was down 0.2 percent at $1.3456 after climbing to a five day peak of $1.3497 earlier.
The dollar rose 0.6 percent to 99.84 yen with a peak of 100.04 yen, buoyed by the comments from Japan’s Finance Minister Taro Aso. Aso sparked a bout of yen selling when he told a parliamentary committee that Japan must retain currency intervention as a policy tool and be ready to take action when markets are excessively volatile.
The low-yielding yen was also hurt after Fed chairman nominee Janet Yellen suggested she was in no hurry to trim stimulus, in remarks released before her Senate confirmation hearing later on Thursday.
“As initiatives are put in place (by the Bank of Japan) dollar/yen will move higher,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London which forecasts a rise to 105 yen by year-end.
The U.S. currency largely shrugged off Yellen’s prepared remarks and was up 0.1 percent against a basket of currencies <.DXY> at 81.014. Analysts said traders were wary she might be less dovish in the Q&A session. Her testimony starts at 1500 GMT.
Yellen’s prepared testimony “reflects her dovish biases but should not have come as a surprise to markets,” said Scotiabank’s Sutton.
The dollar pared gains against the euro after data showed the number of Americans filing new claims for unemployment benefits fell last week, but an upward revision to the prior week’s figure suggested the labor market recovery remained gradual.
Analysts said the data will remain secondary ahead of Yellen’s appearance.
RESILIENT EURO
The euro was likely to stay above a low of $1.3295 reached after the European Central Bank cut interest rates last week, unless the central bank opts for more easing measures, said Lena Komileva, managing director at G+ Economics in London.
“The euro will defy gravity until the ECB builds new momentum for liquidity easing,” she said.
ECB Executive Board member Peter Praet raised on Wednesday the prospect of the central bank’s adopting negative interest rates or buying assets from banks.
Sterling was little changed at $1.6061 after weak UK retail sales data.
However, its falls were limited after Bank of England Governor Mark Carney on Wednesday gave an upbeat assessment of the UK economy, leaving open the possibility UK interest rates will rise earlier than previously thought.
(Reporting By Nick Olivari; Editing by Nick Zieminski)
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