Tuesday, September 15, 2009

WORLD FOREX: Dollar Remains Higher On Encouraging US Data

WORLD FOREX: Dollar Remains Higher On Encouraging US Data

By Bradley Davis

NEW YORK (Dow Jones)--The dollar remains stronger against the euro and yen late morning Tuesday after better-than-expected U.S. economic data gave the U.S. currency at least a temporary lift from its post-summer slide.

Whether the dollar can sustain its burst of strength is uncertain, analysts said. In choppy trading, the U.S. currency has already given back some of its post-data gains to the yen and euro.

The latest report on retail sales, which analysts had said are key to a U.S. economic recovery, came in better than expected, with a 2.7% increase, boosted by the government's "Cash for Clunkers" car-buying program. The U.S. Producer Price Index rose 1.7% in August, higher than the 1% analysts had expected.

In addition, the New York Fed's Empire State business-conditions index climbed to 18.88 in September, its highest level since late 2008.

The three reports painted a more encouraging picture of the U.S. economy than investors have been accustomed to seeing.

That the dollar gained on positive U.S. data could be a sign that the dollar sell-off has hit a floor, said Brian Dolan, chief currency strategist at Forex.com in New Jersey.

Late Tuesday morning in New York, the euro was at $1.4596 from $1.4612 late Monday, according to EBS via CQG. The dollar was at Y91.29 from Y91.00. The euro was at Y133.25 from Y132.98. The U.K. pound was at $1.6440 from $1.6562, while the dollar was at CHF1.0387 from CHF1.0355.

The euro had been on a tear against the dollar since the U.S. Labor Day holiday last week, when risk appetite flooded back into the market. The euro hit a nine-month high against the dollar on Monday.

The common currency slipped below $1.4561 in morning trading as investors repositioned after the U.S. data and consolidated after the euro's recent rally.

Still, traders said they expected the euro to remain within its new range.

"We believe the euro extended itself last week, and I think we're just consolidating in these ranges," said Greg Salvaggio, vice president of capital markets at Tempus Consulting in Washington.

The euro within the next few days should trade in a range from $1.4450 to $1.4650, said Sacha Tihanyi, a currency strategist with Scotia Capital in Toronto.

Even if the dollar is given temporary boosts by improving U.S. economic data, the euro is likely to strengthen to $1.50 by the end of the year, based on concerns over U.S. fiscal health, including mounting deficit spending, Tihanyi said.

A significant decline in the dollar had been called a threat to U.S. financial stability in comments Monday from San Francisco Federal Reserve President Janet Yellen. She added that the Fed doesn't have control over the currency, but takes the dollar's movements into consideration when setting monetary policy.

Meanwhile, the pound fell sharply overnight - and continues to fall - after Bank of England Governor Mervyn King said cutting the rates that the BOE pays on deposits could be a "useful supplement" to monetary policy.

The pound sank swiftly from $1.66 to the $1.6525 area, a six-day low against the dollar, immediately after King made the comments in a testimony to a parliamentary committee. It later kept on falling.

Similarly, the euro shot up from GBP0.8786 to GBP0.8828, marking a three-month high against the pound.

"The fact that he made comments around the scope for a rate cut is not supportive for the currency. Given that sterling has performed quite well of late, this is a reality check," said Phyllis Papadavid, a currencies analyst at Societe Generale in London.

-By Bradley Davis, Dow Jones Newswires; 212-416-2654; bradley.davis@dowjones.com

(Katie Martin in London, Cassandra Sweet in San Francisco, Paul Evans in Toronto and Riva Froymovich in New York contributed to this article.)

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(END) Dow Jones Newswires

September 15, 2009 11:26 ET (15:26 GMT)

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