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FOREX-Major currencies steady, US GDP to take centre stage

Published 07/27/2009, 12:04 AM
Updated 07/27/2009, 12:08 AM

* Majors broadly steady, focus on U.S. Q2 GDP at end of week

* Bernanke: H2 growth won't be enough to bring down jobless

By Charlotte Cooper

TOKYO, July 27 (Reuters) - Major currencies ticked over on Monday as the market paused ahead of U.S. GDP figures later in the week for a gauge of the world's biggest economy and kept an eye on stock markets to assess investor confidence.

Federal Reserve Chairman Ben Bernanke said the U.S. jobless rate was likely to stay high even when the economy exited recession sometime in the next few months, and it took growth of about 2.5 percent to keep the jobless rate constant.

U.S. gross domestic product, due on Friday, is expected to show the economy contracted for a fourth consecutive quarter in April-June, the first time that has happened in records dating to 1947.

Forecasts are for a contraction at an annual rate of 1.5 percent, less than the annual pace of decline in the first quarter of 5.5 percent. Some analysts expect it to be the last negative quarter of this recession, making it a key focus for the currency market this week.

"Probably the market's view is that what's good for the U.S. is good for risk more broadly," said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney.

The dollar has tended to suffer on upbeat U.S. economic news in recent months as the global economic crisis has eased, with investors gaining some confidence to move funds into assets they expect to benefit first from a pull-up from recession.

But even though Asia share markets were up 1 percent, currencies such as the euro and Australian dollar, which have risen as investor confidence has returned, were subdued as they neared their highs of the year against the greenback.

The euro inched up 0.2 percent to $1.4225, not far off a seven-week high of $1.4292 set last week or its 2009 peak of $1.4339 hit in early June.

The Australian dollar edged up 0.3 percent to $0.8197, also not far off last week's 6-week high of $0.8223 or its high for the year of $0.8265.

Data from the Commodity Futures Trading Commission on Friday showed currency speculators nearly doubled their bets against the dollar in the week ended July 21, with the value of dollar net short positions reaching its highest since mid-July 2008.

The dollar index, a gauge of its performance against six major currencies, edged up a little from a seven-week low forged last week, and the greenback was steady on the day at 94.79 yen.

Traders said Japanese exporters had placed big dollar sell orders above 95.00 yen, which were likely to cap the dollar's gains this week.

The euro held steady at 134.85 yen while other yen crosses were broadly unchanged after slipping earlier in the session as some traders trimmed long positions created last week.

The dollar rallied briefly in early June when speculation flared suddenly in the market that U.S. interest rates might have to rise sooner than many anticipated.

That speculation has since cooled and Bernanke reiterated in a TV programme on Sunday his core message that the recession should end soon but that considerable risks remain.

He said the Fed expected that in the next couple of years inflation would be quite low because of slack in the economy, but if the economy began to show strength the central bank would have to gradually unwind its special programmes.

The Fed has been buying U.S. Treasuries as part of its special measures and analysts said auctions of government debt this week would also be a market focus.

The Treasury sells a record $115 billion this week and the bond and currency markets are keen to see how demand holds up in the face of rising stock markets and a potentially improving economic backdrop. (Editing by Michael Watson)

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