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Currencies AUD Dollar Trims Gains After Empire State Data and Other Top Forex News.

The U.S. dollar trimmed gains against the pound and yen on Tuesday after this mornings key Empire State data disappointed markets.

The Federal Reserve Bank of New York said that its general business conditions index, otherwise known as the Empire State manufacturing index, came in at 4.48 this month, down from a 20-month high of 12.51 in December. Analysts had expected the index to decline to 9.00. The new orders part of the index also fell to zero from a two-year high of 11 last month.

The data comes on the back of a series of soft U.S. economic reports which has prompted some investors to wonder whether the Federal Reserve will slow the pace of reductions to its asset-buying stimulus program.

The data caused the dollar to trim gains against the yen, which had fallen earlier after the Bank of Japan decided to double part of a growth lending program at its monthly policy meeting, and said individual banks could borrow twice as much as previously under a second facility, in an attempt to boost the effectiveness of its monetary stimulus program.

USD/JPY ended the session up 0.40% to 102.34, down from a high of 102.75.

The dollar also lost ground against the euro despite a report showing that the ZEW index of German economic sentiment deteriorated unexpectedly in February.

The ZEW Centre for Economic Research said that its index of German economic sentiment came in at 55.7 this month, down from 61.7 in January. Analysts had expected an unchanged reading.

It wasn’t all bad news however, the current conditions index improved to two-and-a-half year highs of 50.0 this month from 41.2 in January, beating expectations for an increase to 44.0.

The single currency found support as concerns mount over the outlook for the U.S. economic recovery and fears over turbulence in emerging markets.

EUR/USD closed the session up 0.36% at 1.3757, down from a high of  1.3770 earlier.

While the pound lost ground against the dollar after official data showed that consumer price inflation in the U.K. fell below the Bank of England’s 2% target for the first time since November 2009 in January.

But the dollar pared gains after the release of this mornings Empire State manufacturing index. GBP/USD closed the session down 0.17% to 1.6684, up from a low of 1.6656.

Elsewhere the Australian dollar found support against the greenback earlier in the session after Tuesday’s minutes of the Reserve Bank’s February meeting said a period of steady interest rates is most likely as record-low borrowing costs and a weaker currency support growth.

But the Aussie rally lost steam later in the session, as traders worry that inflation will start to cool off after the middle of 2014. AUD/USD finally closed up 0.02% to 0.9034 at the close of play.

The New Zealand dollar also drifted lower without any significant news to drive price action.

NZD/USD ended the session down 0.75% to 0.8306.

Finally, the greenback was little changed against the Canadian dollar, as outflows of Canadian securities in December may provide investors with some direction after a long weekend of quiet trading.

USD/CAD fell by 0.19% to 1.0943.

More coverage of today’s session.

  • WSJ: Bank of Japan surprises markets. – The Bank of Japan surprised the market on Tuesday by doubling incentives designed to spur bank lending, weakening the yen and lifting Tokyo stocks at a time when the nation’s economy is showing signs of trouble.
  • FT: Sterling shrugs off weak data. – Has the pound’s rally run its course? After hitting a four-year high on Monday of $1.6822, cable, as the sterling/dollar cross is known, was trading around $1.67 mid-session on Tuesday, albeit having shrugged off soft UK inflation numbers.

More Top Stories:

FT: Minimising currency risk is key to finding EM bargains. – Is the emerging-market scare already a thing of the past? Certainly the level of redemptions has abated from emerging-markets equity funds that are tracked by data provider EPFR Global.

New Zealand Herald: NZ dollar drifts lower in thin overnight trading. – The New Zealand dollar drifted lower overnight in thin trading as U.S. markets were closed for a public holiday.

WSJ: Canadian dollar little changed after outflow of Canadian securities data. – The Canadian dollar was little changed against the U.S. dollar early Tuesday, as an outflow of Canadian securities in December may provide investors with some direction after a long weekend of quiet trading.

WSJ: Australian dollar rally fizzles. – The Australian dollar closed little changed Tuesday but only after an early rally on the back of comments by the Reserve Bank of Australia lost steam, and was reversed.

Bloomberg: Can the new gold rally keep going? – Bloomberg’s Julie Hyman and Larry Shover of SFG Alternatives look at the gold market on today’s “Futures In Focus” on Bloomberg Television’s “In The Loop.”