Poor data blunts euro; rate view bolsters dollar

The euro hit a four-week low versus the dollar yesterday as poor economic data was seen denting hawkish monetary policy sentiment, while the greenback firmed on views that the U.S. rate-cutting cycle could end soon.
French consumer confidence fell to its lowest since 1987 when the data series began, adding to a view that the euro zone economy, and by extension European Central Bank policy, isn't insulated from problems pushing the U.S. economy to the verge of recession.
Spanish calendar-adjusted retail sales fell a record 5.5% in March, while German April inflation figures undershot forecasts with the annual rate slowing sharply. By contrast, while the Fed is widely expected to cut borrowing costs by 25 basis points to 2.0%, there is growing speculation that a cut today will mark the end of its easing campaign.

ECB Governing Council member Nout Wellink said slower German inflation was no reason to alter ECB policy, but the comments did not reverse the single currency's fall. Euro zone interest rates currently stand at 4%.
The euro was down 0.6% to $1.5559, having earlier hit a four-week trough at $1.5542 and was down 0.5% at 162.11 yen.

The dollar was steady at 104.10 yen, on track for its best month in four years. Asian trading turnover was very light as the Tokyo market was shut for a holiday.
The euro looks to be heading for its steepest monthly decline against the dollar in almost a year. It also plumbed a four-week low against the pound at 78.30 pence.
The dollar index was on track for its best month since November 2005, benefiting from the view that interest rates are bottoming out.

However this week's data on growth, consumption, manufacturing and payrolls is likely to show the U.S. economy is still deteriorating, implying there is still some risk that rates are set to fall further.