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FOREX-Euro falls on weak GDP data, dollar rises above 100 yen

Jessica Mortimer
Thursday, 14 Nov 2013 | 8:18 AM ET

* Euro falls on weak euro zone Q3 GDP, French contraction

* Dollar hits two-month high versus yen above 100 yen

* Japan's Aso says must retain FX intervention as policy tool

* Yen hurt by strong equities after dovish Yellen comment

LONDON, Nov 14 (Reuters) - The euro fell on Thursday as the euro zone reported weakening growth, while the dollar hit a two-month high against the yen after Japan's finance minister said currency intervention was still a policy option.

The euro was down 0.4 percent on the day at $1.3440 after data showed the euro zone only just emerged from recession in the third quarter with growth of 0.1 percent, dragged down by a contraction in France.

"The data highlighted the euro zone's weak cyclical fundamentals but also raised questions about the structural outlook," said Lena Komileva, managing director at G+ Economics.

The dollar rose 0.7 percent to 100.045 yen, buoyed by the comments from Japan's Taro Aso.

The low-yielding yen was also hurt by equity market gains after incoming Fed chairman nominee Janet Yellen suggested she was in no hurry to trim stimulus, in remarks released before her Senate confirmation hearing later on Thursday.

"As initiatives are put in place (by the Bank of Japan) dollar/yen will move higher," said Ian Stannard, head of European currency strategy at Morgan Stanley, which forecasts a rise to 105 yen by year-end.

The U.S. currency largely shrugged off Yellen's prepared remarks and was up 0.2 percent against a basket of currencies at 81.098. Analysts said traders were wary she might be less dovish in the Q&A session. Her testimony starts at 1500 GMT.

"While the opening statement was tilted towards the dovish side, Yellen may start to sound a little more hawkish during the Q&A," Morgan Stanley's Stannard said. "She may have to provide reassurances ... that the Fed has the tools to exit QE."

RESILIENT EURO

G+'s Komileva said the euro was likely to stay above a low of $1.3295 reached after the European Central Bank cut interest rates last week, unless the central bank opts for more easing measures. The euro earlier hit a one-week high of $1.3496.

"The euro will defy gravity until the ECB builds new momentum for liquidity easing," she said.

ECB Executive Board member Peter Praet raised on Wednesday the prospect of the central bank's adopting negative interest rates or buying assets from banks.

Sterling was down 0.1 percent against the dollar to $1.6037 after weak UK retail sales data.

However, its falls were limited after Bank of England Governor Mark Carney on Wednesday gave an upbeat assessment of the UK economy, leaving open the possibility UK interest rates will rise earlier than previously thought.

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