Tuesday April 15, 2008 - 20:13:25 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar cheered by U.S. manufacturing, inflation data
(Updates prices, adds quote, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, April 15 (Reuters) - The dollar posted gains on
Tuesday, boosted by surprisingly robust U.S. inflation and
manufacturing data, which suggested the Federal Reserve may be
less aggressive in cutting interest rates.
A separate Treasury report showing foreign investors
increased purchases of dollar-denominated assets in February
eased fears that the credit crisis would dry up U.S. capital
"The New York manufacturing data, in particular, leaves us
with the hope that things are not that bad in the U.S.
economy," said Matthew Strauss, senior currency strategist, at
RBC Capital Markets in Toronto.
(For a wrapup of Tuesday's economic data, click on
In late afternoon trade, the euro fell 0.4 percent against
the dollar to $1.5778 <EUR=>, having retreated from an
overnight peak of $1.5875. Last week, it rose to $1.5912, the
highest level since its 1999 launch.
As the euro broke below $1.58, investors covered their
short positions against the dollar, pushing the currency pair
Strauss said there is still the possibility that
euro/dollar could break above $1.60, but the momentum has
stalled and markets could see a sustained turnaround in the
dollar by the second half of the year.
Against the yen, the dollar traded at 101.58 yen <JPY=>,
off a session peak of 101.79 yen, but still up 0.5 percent.
The dollar shed 10.5 percent against the euro last year and
has weakened over 8 percent so far in 2008, a slide driven by a
Fed that has cut benchmark interest rates by 3 percentage
points since the onset of a housing-led credit crunch in
Worries about the U.S. economy, which many fear may already
be in recession, and more banking sector losses have markets
expecting another rate cut this month, though analysts are
betting on a modest quarter-point cut to 2 percent FEDWATCH.
Labor Department data on Tuesday showing U.S. producer
prices advanced by a more-than-expected 1.1 percent in March
bolstered that view.
STILL WARY OF BUYING DOLLARS
Despite the dollar's intraday gains, analysts said markets
remain wary of buying the currency, as fears of a sharper U.S.
economic slowdown and more banking losses keep global investors
skittish about betting to heavily on the greenback.
European monetary policy-makers' continued focus on
inflation threats also helped limit euro losses.
Unlike the Fed, the European Central Bank has held
benchmark rates at 4 percent for more than a year, and
officials have shown little appetite for near-term cuts.
For now, foreign dollar demand appears to be holding up,
though. The U.S. Treasury's latest TICS report, which tracks
capital flows into and out of the United States, showed
overseas investors in February were net buyers of long-term
U.S. assets to the tune of $72.5 billion.
That beat the prior month's $57.1 billion inflow and was
enough to cover the month's $62.3 billion trade deficit.
Analysts said the data suggests recent distress in funding
markets has yet to weaken foreign appetite for U.S. assets.
On Wednesday, data on U.S. consumer prices for March will
be released and markets are expecting a core CPI reading of 0.2
percent for the month and 2.4 percent year-on-year, which is
above the Fed's comfort zone.
"While the Fed remains concerned over the elevated core
inflation rate, it expects the pace of inflation to moderate in
the months ahead as increased slack develops in the
labor and product markets," said Calyon in a research note.
Calyon continues to favor the prospect of a
half-percentage-point easing at the April Fed meeting.
(Additional reporting by Steven C. Johnson; editing by Gary
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