FOREX-Dollar struggles after soft US data, euro looks to GDP

Reuters - UK Focus

* Dollar index wallows after disappointing consumerspending, jobless claims

* Euro brushes off news of Italy PM's resignation, looks toGDP

* Aussie pokes above 90 U.S. cents after China inflationdata

By Ian Chua

SYDNEY, Feb 14 (Reuters) - The U.S. dollar was pinned atthree-week lows against a basket of major currencies on Fridayafter disappointingly soft U.S. data dealt a blow to the alreadystruggling greenback.

The Euro brushed off news that Italy's prime minister wouldresign, instead focusing on the euro zone's GDP data due laterin the day for near term direction.

U.S. retail sales fell unexpectedly in January and moreAmericans filed for jobless benefits last week, the latest signsthe world's biggest economy started the year on a softer footingas bad weather took its toll.

The dollar index slid to a low of 80.194, reaching alevel last seen on Jan. 24. It has since crept up to 80.282.

The dollar stood at 102.08 after clawing back fromThursday's low of 101.695, while the euro climbed to a nearthree-week peak of $1.3675.

The decline by the dollar index came as U.S. Treasury yieldsfell. Oddly, Wall Street recovered and closed higher as someinvestors looked past the disappointing data, chalking theweakness up to weather instead of weaker fundamentals.

The euro barely reacted to news that the Italian primeminister will resign on Friday, opening the way for thecountry's third administration in a year.

"Market players are turning a blind eye to the Italian primeminister's resignation as recently the euro zone economy hasbeen spared from bearish news," said Ayako Sera, senior marketeconomist at Sumitomo Mitsui Trust.

"But the market will react quickly once the euro zoneeconomy starts showing signs of weakness," Sera said.

Investors will have a chance to gauge the health of the eurozone economy through the fourth quarter growth data later in theday. Analysts polled by Reuters expect slightly faster growth inthe euro zone economy.

"After ECB President (Mario) Draghi specifically pointed toQ4 GDP as a key piece of incoming evidence on the economy, thereport should be watched closely today," analysts at BNP Paribas (Milan: BNP.MI - news) wrote in a note to clients.

Last week, Draghi put markets on alert for possible policyaction in March.

Any positive news on growth, however, is still likely to beoffset by persistently low inflation, which will be key forfurther ECB easing and a weaker euro, BNP (Paris: FR0000131104 - news) analysts said.

The standout currency overnight was sterling which climbedto its highest in nearly three years against the greenback. Ithit $1.6675, taking total gains this week to more than1.5 percent.

The soft U.S. data stood in stark contrast with the Bank ofEngland's much more upbeat outlook for the British economy whichhelped lift the pound this week.

The Australian dollar was in focus after it dropped one fullU.S. cent on Thursday in the wake of surprisingly weak labourdata.

It touched a low of $0.8928 before clawing backhalf its losses, nudging above 90 U.S. cents following data outof China that showed consumer prices rose 2.5 percent inJanuary, broadly in line with expectations.

China is Australia's main export market and the Aussie isoften used as a liquid proxy for China plays.

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