WORLD FOREX: Dollar Climbs After US Data Points To Recovery
A recent run of firmer U.S. economic data has bolstered the dollar while the euro remains under pressure from its sovereign-debt crisis.
The euro temporarily slipped below $1.32 and the dollar briefly broke above Y84, after the Reuters/University of Michigan preliminary December consumer-sentiment index rose to 74.2, above economists' forecast of 73 in a Dow Jones Newswires survey.
Data showing the U.S. government ran its 26th straight monthly budget deficit had little impact on currency markets, with investors taking a short-term view of a U.S. economy that increasingly shows sign of recovery.
"It's been awhile since U.S. economic data moved markets," with investors so focused on sovereign-debt issues, said Robert Lynch, currency strategist at HSBC in New York. But Friday's dollar reaction showed that market participants are gaining some confidence that, with the U.S. tax-cut extensions announced earlier this week, the U.S. economy could gain more momentum, several analysts said.
"I'm still quite optimistic on the prospects of the dollar, based on the [tax] cuts earlier this week in Washington," said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Conn. "There is a bit of a defense mechanism heading into the weekend," with risks associated with a possible interest-rate increase in China, which also helped the dollar, he said.
The dollar gained from a more negative sentiment toward riskier global assets, with speculation swirling that the People's Bank of China would raise interest rates for the second time this year to stop its rapidly expanding economy from overheating. Investor eyes remain focused on the release of consumer price data Saturday morning in Asia, with talk in the Chinese press suggesting data will show inflation leapt as much as 5.1% year-over-year in November after rising 4.4% in October.
Late Friday afternoon, the euro was at $1.3229 from $1.3243 from late Thursday, according to EBS via CQG. The dollar was at Y83.90 from Y83.69, while the euro was at Y110.99 from Y110.82. The U.K. pound was at $1.5804 from $1.5771. The dollar was at CHF0.9812 from CHF0.9833.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 80.078 from 80.019.
Friday's U.S. data turned the tide on currency movements earlier in the global session.
Overnight, the euro had gained modestly against the dollar as investors interpreted China's 50-basis-point rise in bank reserve requirements as a signal that China may be less inclined also to boost interest rates.
That helped to improve investor confidence in riskier assets, but the small gains indicated market participants still remain wary that China might lift interest rates.
"The PBoC is [still] expected to follow this up with its second rate hike since October, perhaps as soon as this weekend," said Brown Brothers Harriman analysts in New York.
(To see the euro's performance against the dollar, please see:
http://www.dowjoneswebservices.com/chart/view/5128.)
Separately, net speculative bets against the euro, called shorts, rose 111% in the week ended Dec.7, on the back of the euro zone debt crisis, according to a Scotia analysis of the weekly Commitments of Traders report released by the U.S. Commodity Futures Trading Commission late Friday.
With the ICE Dollar Index strengthening, Deutsche Bank's PowerShares U.S. Dollar Index Bearish exchange-traded fund was down 0.04% from late Thursday, while its PowerShares U.S. Dollar Index Bullish fund was even on day. The two exchange-traded funds are based on Deutsche Bank currency-futures indexes, whose composition mirrors that of the ICE's Dollar Index.
-By Andrew J. Johnson, Dow Jones Newswires; 212-416-3092; andrewj.johnson@dowjones.com
--Bradley Davis in New York contributed to this article.
