FOREX-Euro climbs on upbeat sentiment data; dollar struggles

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Saikat Chatterjee
LONDON, May 11 (Reuters) - The euro rose on Tuesday,
hovering just below a 2-1/2 month high hit in the previous
session, after data showed German investor sentiment surged to
its highest level in May since the start of the COVID-19
pandemic.
The ZEW economic research institute said its survey of
investors' economic sentiment rose to 84.4 points from 70.7 the
prior month. The last time it hit a higher level was in February
2000. A Reuters poll had forecast a rise to 72.0. "Investors are clearly on a more optimistic mood thanks to
the improved pace of vaccinations in Germany and the rest of the
eurozone," Scotiabank strategists said in a note.
The single currency EUR=EBS climbed 0.35% to $1.2170,
holding just below a Feb. 26 high of $1.2179 hit on Monday. It
has gained 4% from a five-month low at the end of March.
The euro's gains were also bolstered by widespread dollar
weakness as investors waited for comments on U.S. policymaker
thinking ahead of inflation data on Wednesday.
Appearances later on Tuesday from U.S. Federal Reserve
members John Williams, at 1430 GMT, and Lael Brainard, at 1600
GMT, will be parsed for clues as to central bank thinking.
A disappointing employment report last week triggered a
widespread selloff in the greenback and though surging commodity
prices have raised concerns of higher inflation in the coming
months, markets believe the Fed will remain on hold.
“There is a sense that the Fed has nailed its colours to the
mast in terms of allowing the U.S. employment market to dictate
monetary policy settings going forward, and with this stance
expected to see Fed policy remain ultra-loose for an extended
period,” said Stuart Cole, head macro economist at Equiti
Capital.
Resource-oriented currencies including the Canadian dollar
and the Aussie consolidated gains as a rally in commodity prices
boosted their appeal.
The Australian dollar AUD=D3 steadied at $0.7827, hovering
just below a two-month high hit on Monday. The Canadian currency
CAD=D3 stabilised near a near four-year high, while the New
Zealand dollar NZD=D3 perched comfortably at February highs.
Against a basket of its major rivals =USD , the dollar
steadied at 90.283, just above a Feb. 25 low of 90.03 hit in the
previous session.
"The big question is whether the Fed can be comfortable
staying dovish," said Bank of Singapore currency analyst Moh
Siong Sim. "If inflation rises more than the Fed expects... what
happens to the Fed then?"
Markets expect U.S. year-on-year inflation to hit 3.6% in
April, juiced by the base effect of a pandemic year contraction.
Investors seem increasingly at odds with policymakers over
whether that sort of price growth will persist, and drove up
U.S. five-year breakevens - a measure of inflation expectations
- to a decade-high 2.717% on Monday. US/

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