Tuesday May 13, 2008 - 11:38:41 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar up on Fed view, US sales data awaited
(Changes byline, adds quotes, updates prices)
By Simon Falush
LONDON, May 13 (Reuters) - The dollar rose broadly on
Tuesday as some investors speculated that the Federal Reserve
may be nearing the end of its rate cutting cycle, while a fall
in stock prices cranked up risk aversion, supporting the yen.
Traders awaited U.S. retail sales figures due at 1230 GMT
for more clues about the Fed's policy outlook.
Some believe the U.S. central bank will pause its easing
campaign after slashing borrowing costs by 325 basis points
since September to 2 percent.
The data are expected to show a dip of 0.1 percent in retail
sales in April due to a big drop in auto sales. Excluding autos,
sales are forecast to rise 0.2 percent, slightly more than in
Doubts remain however on whether the U.S. government and
Federal Reserve have done enough to get the U.S. economy back on
track. The sales data due could reflect that, analysts said.
"I'm still looking for softer U.S. economic data, I'm
waiting for the numbers to catch up with people's view that
there is a recession in the U.S. in the first half of the year,"
said Niels Christensen, currency strategist at Nordea in
The euro was down 0.5 percent at $1.5461 <EUR=> by 1043 GMT.
Against a basket of currencies the dollar was up 0.4 percent at
Sentiment on Europe was dented by a rights issue at Credit
Agricole due to further writedowns, high British inflation and
further signs of weakness in the British housing market, which
helped to drag stocks half a percent lower .
"Data out of the UK was very negative ... and equities have
turned into negative territory and that's why yen crosses are
down," said Michael Klawitter, currency strategist at Dresdner
Kleinwort in Franfurt.
The yen tends to benefit and high yielding currencies fall
when risk aversion increases as investors exit carry trades
where they use the low yielding currency to fund purchases of
higher yielding assets.
The euro was down 0.6 percent against the yen at 160.40
<EURJPY=> while the dollar was little changed at 103.75 yen.
UK PRICES SURGE
Data showing a fall in British housing and retail sales
underlined economic weakness spilling over from the credit
crunch amid rising inflationary pressures with CPI growing at
its fastest rate since May 2001. Click on [nL13567339]
The grim figures had preceded a report on British inflation
on Tuesday and analysts said that while surging prices may
prompt the Bank of England to delay cutting rates, economic
weakness stemming from a housing downturn would prompt more rate
cuts in the future, pushing sterling lower.
The pound fell 0.5 percent versus the dollar to $1.9470
<GBP=> and high yielding currencies like the Australian <AUD=>
and New Zealand <NZD=> dollars were both down more than half a
percent against the U.S. currency.
Several Federal Reserve officials, including Chairman Ben
Bernanke, will also speak on credit markets and the economic
outlook later in the day and could flesh out thinking on the
prospect of a pause in cutting rates.
"The range of expectations (for U.S. retail sales) is pretty
wide as people weren't quite sure what to do with (the impact of
an early) Easter, so they may be bracing themselves for a bit of
a surprise on which way it's going to go," ING head of currency
strategy Chris Turner said.
"You have to look at things in terms of what the market is
pricing in for the June rate meeting which is pretty much
nothing ... so on balance we think the risk might be skewed
towards a slightly weaker dollar," he added.
(Additional reporting by Veronica Brown; Editing by Gerrard
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