The euro pulled away from two-month lows against the dollar in holiday-thinned trade on Monday, but gains were held in check as concerns over the economic outlook for the euro zone weighed. The common currency remained under pressure amid concerns that the subdued inflation outlook for the euro zone may prompt the European Central Bank to ease monetary policy further in order to safeguard the fragile recovery in the region. The euro found some support after data on Monday showed that China’s economy grew 7.7% on a year-over-year basis in the fourth quarter, slowing from 7.8% in the previous quarter, but still above the 7.6% forecast by economists. Demand for the dollar continued to be underpinned after recent U.S. economic data added to the view that the recovery is strong enough for the Federal Reserve to make further reductions to its asset purchase program at its upcoming policy meeting later this month. Trade volumes remained thin on Monday, with markets in the U.S. closed for a holiday..
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The pound edged higher against the dollar on Monday as Friday’s stronger-than-expected U.K. retail sales numbers for December bolstered the outlook on the economic recovery. Demand for sterling continued to be underpinned after data on Friday showed that U.K. retail sales jumped 2.6% in December from a month earlier and were 5.3% higher on a year-over-year basis. Analysts had expected a monthly increase of 0.4% and an annual gain of 2.6%. The strong data reinforced the view that the economic recovery will continue to deepen going into this year and fuelled expectations that the Bank of England may raise interest rates ahead of other central banks. Sterling’s gains were held in check after recent U.S. data added to the view that the U.S. economic recovery is strong enough for the Federal Reserve to make further reductions to its asset purchase program at its policy meeting later this month.
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The yen climbed for a third day against the dollar as a report showed China’s economic growth slowed in the fourth quarter, boosting demand for the Japanese currency as a haven. The yen rose versus most of its 16 major peers as equities slid. Chinese gross domestic product rose 7.7 percent in the October-December period from a year earlier, the National Bureau of Statistics said in Beijing, compared with 7.8 percent in the third quarter, beating the 7.6 percent gain estimated by analysts in a Bloomberg survey. The dollar slid from an eight-week high against the euro, while Brazil’s real rose to the most in three weeks. The Australian dollar rose the first time in five days. U.S. markets are shut for a public holiday. “Given the build-up in short positions in the Japanese yen we saw some position squaring over night,” said Jack Spitz, managing director of foreign exchange at National bank of Canada, by phone from Toronto. “I wouldn’t draw any strong conclusions from the data that came out, and I would see it influence more on the Australian dollar”.
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The U.S. dollar edged lower against its Canadian counterpart in thin trade on Monday, but remained supported by expectations for the Federal Reserve to continue tapering its stimulus program this year. USD/CAD edges lower in thin trade Loonie slips lower against greenback USD/CAD hit 1.0930 during early U.S. trade, the pair's lowest since January 17; the pair subsequently consolidated at 1.0950, slipping 0.12%. The pair was likely to find support at 1.0879, the low of January 14 and short-term resistance at 1.0983, the high of January 17. The greenback remained supported after recent U.S. economic data last week reinforced expectations that the recovery is strong enough for the Federal Reserve to make further reductions to its asset purchase program at its policy meeting later in the month. Meanwhile, the loonie remained under pressure amid expectations that the Bank of Canada will stick to its dovish stance on rates at this week’s policy meeting.
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