March 29, 2018 / 8:14 AM / 10 months ago

FOREX-Dollar holds its gains as trade war fears recede; euro edges lower

(No EMEA FOREX reports on March 30 and April 2)

* Dollar index up slightly after rally

* Euro weakens; traders eye German inflation data

* Dollar headed for 4th consecutive qtr of losses

* Graphic: World FX rates in 2018

By Tom Finn

LONDON, March 29 (Reuters) - The dollar held on to its gains on Thursday after a big rise in the previous session, but traders said the outlook for the greenback remained negative as it headed for its fourth consecutive quarter of losses.

The euro, which has largely taken its direction from the dollar in recent weeks, fell back slightly to $1.2302.

Global markets were shaken this month when U.S. President Donald Trump moved to impose tariffs on Chinese goods and Beijing threatened similar measures.

But fears of a full-blown trade war have eased on hopes negotiations can bring a compromise, encouraging investors to buy the dollar.

Quarter-end and month-end flows have also boosted the dollar as global asset and fund managers rebalanced portfolios. Data showing fourth-quarter U.S. economic growth slowed less than estimated also supported the greenback.

The dollar index, which measures the greenback against a basket of six other major currencies, was up 0.1 percent at 90.099.

Analysts said this week’s jump for the dollar looked overdone, however, and that many of the structural reasons for the U.S. currency’s decline - trade and budget deficits and monetary tightening in other parts of the world - remained.

“Is U.S. protectionism good or bad? The market is very undecided about this, but the dollar’s bounce was a little bit too bold from the market’s perspective,” said Ulrich Leuchtmann, head of FX strategy at Commerzbank.

German inflation data due out later on Thursday could move the euro but only marginally, said Leuchtmann.

The euro has been weighed down recently by comments from some European Central Bank officials suggesting the ECB is in no hurry to wind back its stimulus, given the spectre of low inflation.

So traders will be looking at German consumer price data for March, due at 1200 GMT.

“Frankly, the data would have to surprise to have a meaningful impact, the market basically has made up its mind about hikes, even if the data comes higher, it doesn’t mean the ECB would get more excited or hike any sooner,” he said.

Elsewhere, the dollar eased against the yen, losing some momentum after hopes of detente in East Asia provided the spark for its largest daily gain in six months the previous session.

The dollar fell 0.2 percent to 106.63 yen, giving back some gains after surging 1.43 percent on Wednesday, its biggest rise since Sept. 11 of last year.

China said on Wednesday North Korea’s leader Kim Jong Un pledged his commitment to denuclearisation, while U.S. President Donald Trump tweeted that Kim looked forward to meeting with him.

This has prompted some speculation among traders that a diplomatic breakthrough over North Korea’s nuclear programme might be closer at hand than ever before, although the hurdles to a solution remain stiff.

Because of Japan’s status as a net creditor nation, the yen tends to be bought on rising geopolitical tensions and vice versa.

Some traders also noted, however, that currency trading so far this week has been driven by flows related to quarter-end, and for many Japanese firms, the financial year end, on March 31.

“There are a lot of noises this week. We feel quarter-end, and financial-year end flows are somehow larger this year than usual,” said Bart Wakabayashi, Tokyo Branch Manager of State Street. (Additional reporting by Hideyuki Sano in Tokyo and Masayuki Kitano in Singapore; editing by Andrew Roche)

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