WORLD FOREX: Euro Drifts Down As Spanish Worries Mount
-- Dollar slightly higher against euro as Spanish worries mount
-- But gains limited as traders mull U.S. interest rate outlook
-- Australian dollar steadies after initial Chinese growth data knock
By William Kemble-Diaz
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--The dollar made gains against the euro in European hours Friday, snapping a run of modest losses, after Chinese growth data disappointed and as Spanish fiscal worries gnawed away at confidence.
But the moves were muted as investors took solace from overnight comments from Federal Reserve officials suggesting U.S. interest rates would stay ultra-low for a long time and delved deeper into the Chinese data.
Compared with the previous year, the world's second-biggest economy grew by 8.1% in the first quarter. That was weaker than the 8.3% consensus flagged by a Dow Jones Newswires poll of economists. It was also much weaker than the 9% figure rumored Thursday, which helped spur gains in growth-sensitive currencies like the Australian dollar.
"If we hadn't had that 9% rumour, the big picture is that the Chinese are successfully managing growth slower...that it is still looking pretty good," said Steven Saywell, head of FX strategy in Europe at BNP Paribas.
The point was reiterated by analysts at Barclays, who said Chinese growth was already showing signs of stabilising.
"[Credit] and money data suggest that financing conditions are already improving, which should in turn help stabilise economic growth and reduce the need for aggressive stimulus," they said in a note.
In Europe, doubts over Spain's capacity to rein in its fiscal deficit remained front and centre, with the country's stock market plumbing three-year lows, yields on benchmark 10-year Spanish government bonds edging back toward the psychologically ominous 6% level and the cost of insuring against a Spanish default rising to a new record high.
If currency traders were worried, though, that didn't come through in the performance of the euro, which drifted slightly against the dollar from a high of around $1.32 in early Asian trade and remained up on the week.
Saywell said the market was playing a game of brinkmanship but that when push came to shove it believed the commitment of the European Central Bank and of Europe generally to Spain and other peripheral countries remained very strong.
Currency strategist Neil Mellor of BNY Mellon said investors were also unsure how best to trade the dollar due to the uncertainty over the future of U.S. monetary policy and the buck's recently changed response to U.S. economic data.
The dollar in overnight trade was weighed down by comments from Fed vice chair Janet Yellen and New York Fed president William Dudley which indicated that interest rates will remain low through 2014 and raised the possibility of a third round of U.S. quantitative easing if the U.S. economy falters.
The pound was unmoved by above-forecast U.K. producer price inflation data, while emerging market currencies were mixed.
Still to come are U.S. consumer price inflation data at 1230 GMT, with the consensus looking for 0.2% gain.
At 1039 GMT, the euro was trading at $1.3164 against the dollar, compared with $1.3186 late Thursday in New York, according to trading system EBS. The dollar was at Y80.96 against the yen, compared with Y80.89, while the euro was at Y106.60 compared with Y106.65. The pound was trading at $1.6121 against the dollar, compared with $1.6196 late Wednesday in New York.
The Australian dollar was at $1.0408, having slipped to as low as $1.0370 in early European trade.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was trading at 79.457, compared with 79.341 late Thursday in New York