FOREX-Euro drops on debt fears, but rate view still reigns

                                
  
                                
 * Euro shrugs off higher-than-expected euro zone CPI data
                                
 * U.S. core consumer prices contained
                                
 * Dollar/yen on pace for worst week in 9 months
                                
 (Updates prices, adds quote, changes byline)
                                
 By Julie Haviv
                                
 NEW YORK, April 15 (Reuters) - The euro succumbed to
sovereign debt fears on Friday, but the single-currency should
remain range-bound or even rebound against the dollar as loose
U.S. Federal Reserve monetary policy goes head-to-head with a
hawkish European Central Bank.
                                
 Peripheral sovereign debt concerns have mostly been
outweighed by rate expectations this year, but nevertheless the
euro has suffered from setbacks along the way, with Friday no
exception after Moody's cut Ireland's rating to just above
"junk" status. [ID:nLDE73E0DU]
                                
 In early afternoon New York trading, the euro <EUR=EBS> was
down 0.4 percent at $1.4436, well below a 15-month high of
$1.4521 touched earlier this week. The euro was down about 0.3
percent so far this week.
                                
 Traders said market ran stop orders below $1.4430, pushing
the euro to session lows at $1.4407 on electronic trading
platform EBS.
                                
 The options market suggests euro zone debt worries are not
at the forefront of investors' minds. Benchmark volatilities
implied by one-month at-the-money euro/dollar options <EUR1MO=>
was around 9.35 percent on Friday, near a one-year low.
                                
 Six-month <EUR6MO=> and one-year implied vols <EUR1YO=>
remained elevated though, trading at 11.45 percent and 12.25
percent respectively.
                                
 Several top Federal Reserve officials have sounded
reassuring about inflation, and data on Friday supported that
stance. For Fed comments, click on [ID:nN14167673].
                                
 Data showed U.S. core consumer prices for March were
contained, suggesting the Fed was still a long way away from
tightening monetary policy. [ID:nN15209781]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^  
For graphic on core CPI vs. University of Michigan 5-year
inflation expectation index: http://r.reuters.com/dyp98r
                                
 U.S. inflation: http://r.reuters.com/jap98r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
 To many economists the data affirmed expectations that the
Fed would not raise rates until early next year.
                                
 The ECB. meanwhile, raised rates to 1.25 percent from 1
percent last week, its first rate hike since July 2008.
                                
 Euro zone inflation numbers surprised on the upside,
reinforcing views the ECB will continue to raise rates in the
coming months. [ID:nBRLFFE7CY]
                                
 "A year from now, the ECB may have navigated the exit from
accommodative policies, at the point at which the FOMC (Federal
Open Market Committee) will be about to raise rates," said Jens
Larsen, chief European economist at RBC Capital Markets in
London.
                                
 "If the ECB hike does not cause a significant slowing of
growth in the euro area, or a sharp deterioration in the
periphery, then the pre-emptive strategy may well be judged
successful."
                                
 Investors are pricing in the chances of two more ECB rate
increases before the end of this year <ECBWATCH>.
                                
 "The interest rate differential argument has clearly
supported the euro the last few weeks," said Greg Salvaggio,
senior vice president for capital markets at Tempus Consulting
in Washington.
                                
 "The ECB has hiked rates and will probably hike again by
the end of the summer and now the question is what will the Fed
do. Clearly this benign inflation data that we got this morning
won't push the Fed quickly to hike rates."
                                
 Market players said the euro could find the going tough
above $1.45 given concerns about sovereign debt problems, which
escalated this week as fears about a possible Greek
restructuring intensified. [ID:nLDE73D0XQ]
                                
 The U.S. stock market. meanwhile, is reflecting a "risk-on"
stance, with the Standard & Poor's <.SPX > 500 stock index up 5
percent this year.
                                
 Charles Schwab Corp <SCHW.N>, the largest U.S. discount
brokerage, posted higher-than-forecast earnings. Chairman
Charles Schwab said in a statement that clients had reduced
their cash holdings at Schwab to levels not seen since before
the financial crisis of 2008 and are investing more money in
stocks. [nN14177981]
                                
 The dollar was down 0.4 percent at 83.12 yen <JPY=>, but
losses were limited. The greenback has fallen in six of the
last seven sessions and was on track for its worst weekly
performance in about nine months with losses this week of 2.1
percent.
                                
 (Additional reporting by Gertrude Chavez-Dreyfuss in New
York; Editing by Diane Craft)