FOREX-Euro dips after Trichet remarks, but dollar still seen

By Hideyuki Sano

TOKYO, April 26 (Reuters) - The euro slipped on Tuesday after European Central Bank Governor Jean-Claude Trichet said he shares the view that a strong dollar is in the interest of United States, a comment taken by some market players as showing frustration over the dollar's relentless fall and also an attempt to talk up the currency.

Trichet also told two Finnish newspapers he does not see any significant second-round inflation, prompting traders to dump euro long positions against the dollar, although many traders think the dollar will remain under pressure from a perception that the U.S. central bank is far more reluctant to tighten its policy any time soon. [ID:nEBE7DA00T]

"I don't take it lightly that Trichet is talking about the dollar rather than the euro. European policymakers became alarmed when the euro rose above $1.45 in 2007 and they started to rein in the dollar's fall," said Minori Uchida, a senior analyst at the Bank of Tokyo-Mitsubishi UFJ, adding that the world's policy-makers are increasingly worried about the dollar's fall.

"In the Group of Seven (G7) statement right after the dollar index hit a record low in March 2008, the G7 said it was concerned about currency moves. The U.S doesn't necessarily want to cheapen the dollar against the euro and the yen. Its target is China. So I wouldn't be surprised if there were international moves (to stem the dollar's fall)," he added.

The euro fell 0.3 percent to $1.4532, slipping further from a 16-month high of $1.4649 hit last week. The euro has support at $1.4486, a weekly high hit earlier in April, but more significant support levels are further away. One such support lies at $1.4403, the 50 percent retracement of the euro's rally to $1.4969 from $1.4156.

The euro has been rising this year and was seen due for a pull-back.

Data from U.S. Commodity Futures Trading Commission showed speculators' long positions in the currency were still near a three-year high on the Chicago futures exchange. Their net euro long position was 62,195 contracts last week, not far from a three-year high of 64,985 contracts hit in the preceding week. [ID:nN25194222]

Indeed, some market players said the euro's drop and the dollar's broad rise was mainly due to investors trimming their positions ahead of the U.S. Federal Reserve's two-day policy meeting that starts on Tuesday. [ID:nN1941922]

The dollar rose 0.3 percent against a basket of major currencies to 74.190 <.DXY>, pulling away from a three-year low of 73.735 hit last week, and also rose against some emerging Asian currencies. The dollar climbed 0.3 percent versus the Indonesian rupiah to 8,650 , on track for its biggest one-day percentage rise since late November. [ID:nL3E7FQ05J]

The dollar gained ground against the Australian dollar, which fell 0.3 percent to $1.0691 as commodities faltered, with spot silver tumbling by more than 4 percent at one point after having risen to within a whisker of a 1980 record high the previous day. [GOL/]

"Basically, today's price action is just a matter of people squaring up ahead of the FOMC," said Mirza Baig, senior currency strategist with Deutsche Bank in Singapore, adding that Trichet's earlier comments regarding the risks of second-round inflation did not seem particularly new.

"I think it's basically just confirming what he said before, that you can't take a tightening cycle from the ECB for granted. They will sort of tighten according to how data is coming out," Baig said.

Despite the dollar's gain on Tuesday, many market players think the U.S. currency will remain fragile given the perception that the Federal Reserve will be in no rush to unwind its easy monetary policy.

The Fed is expected to say it will stick to its plan to complete a $600 billion bond-buying programme in June at its two-day policy meeting starting on Tuesday, with the focus on the post-meeting news conference by Fed Chairman Ben Bernanke on Wednesday -- the first regularly scheduled news briefing by a Fed chief in the U.S. central bank's 97-year history.

Many traders expect Bernanke to avoid dropping any hints of an immediate plan to tighten the bank's policy.

"I think the rough consensus in the market is that Bernanke will not say anything surprising, which will give the market a fresh impetus to sell the dollar," said a trader at a Japanese bank.

Against the yen the dollar slipped to a four-week low of 81.56 yen . The yen had been sold earlier this month as traders think quake-stricken Japan is even less likely than the United States to tighten its monetary policy for the foreseeable future. It was the only major currency on which speculators held a short position against the dollar last week, based on CFTC data.

After trimming some of its losses against the yen, the dollar stood at 81.69 yen , down 0.2 percent from late U.S. trade on Monday. (Additional reporting by Masayuki Kitano and Reuters FX analyst Rick Lloyd in Singapore; Editing by Kim Coghill)