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Euro rises to 3-week high on economy

Friday, February 14 16:42:50

Euro zone growth numbers today topped forecasts and helped push the euro to a nearly three-week peak against the dollar as investors bet action to avert deflation by the European Central Bank next month was less likely.

The single currency rose as high as $1.3715 after slightly stronger-than-expected growth in Germany and France pushed euro zone fourth-quarter GDP up 0.3 percent, above a forecast of 0.2 percent.

The dollar was weak after softer-than-forecast U.S. data on Thursday and traded lower on Friday even after a better-than-expected report of American consumer sentiment.

The dollar index on Friday slid to a low of 80.065, its lowest since the start of the year, and was last at 80.199, down 0.16 percent. The dollar was down 0.25 percent against the yen at 101.885 yen.

"The dollar is having a bad day," said Lane Newman, director of foreign exchange at ING Capital Markets in New York. "A lot of it has to do with positioning involving the euro."

The euro zone data is likely to help reduce expectations that the ECB will cut interest rates at next month's meeting, after President Mario Draghi last week declared more information was needed before deciding on any action.

This week ECB Executive Board member Benoit Coeure said the idea of cutting the rate the ECB pays banks to hold their deposits overnight into negative territory was "a very possible option".

"When you see better growth data the market quite simply thinks there's less chance of deflation and less chance of Draghi taking action, which is currency-supportive," said Jane Foley, senior currency strategist at Rabobank.

She said she expects no ECB action next month as Draghi will take "a few months at least" to assess the inflation data.

U.S. economic data has been dampened by a rough North American winter, disappointing many investors throttling back on dollar investments, according to analyst Joe Manimbo at Western Union Business Solutions in Washington.

"Until U.S. growth starts to show more promising potential, the dollar could be at risk for further slippage," Manimbo said in a commentary.

The euro flirted with the $1.37 level, the top of the daily Ichimoku cloud, a technical measure which is significant for chartists. A close above that level could provide support to send the euro even higher. The euro was at $1.3684 in late-morning trade in New York.