Monday August 4, 2008 - 17:14:57 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar up versus yen on inflation data, oil slump
* Dollar higher vs yen on stronger U.S. inflation data
* Central bank meetings this week awaited
* Crude oil futures tumble below $120
(Recasts, adds comments, updates prices)
BY Vivianne Rodrigues
NEW YORK, Aug 4 (Reuters) - The dollar rose against the
Japanese yen on Monday as oil prices sold off and a gauge of
U.S. core inflation closely watched by the Federal Reserve rose
more than expected.
Demand for the U.S. currency versus the euro was capped as
traders awaited a host of central bank meetings this week. The
Federal Reserve, the Bank of England and the European Central
Bank will all issue rate decisions.
Most economists expect both the ECB and the Fed to hold
benchmark interest rates steady this week.
Still, some analysts said the stronger-than-expected
reading in core U.S. inflation data may support the case for a
rate hike by year end. The PCE data for June was released by
the Commerce Department in a report which also showed
stronger-than-expected consumer spending and personal income
for the month.
"The better spending and income numbers continue to suggest
signs of stabilization in the U.S. while much of the economies
across the pond continue to deteriorate," said Brian Dolan,
chief currency strategist at Forex.com in Bedminster, New
"The higher-than-expected -increase in core PCE -- the
Fed's favorite inflation gauge -- keeps Fed rate hike
expectations for the end of the year on the table. It's overall
dollar positive," he said.
In midday trading in New York, the dollar was 0.5 percent
higher against the yen at 108.20 <JPY=>. The dollar also rose
against a basket of six currencies and traded last 0.2 percent
higher at 73.524 .DXY.
U.S. crude futures tumbled more than $5 and dropped below
$120 a barrel on Monday CLc1.
The core U.S. PCE price index rose 0.3 percent in June
above economists' consensus forecast for a 0.2 percent rise.
For details, see [ID:nN01255394].
And another report on Monday showed new orders at U.S.
factories also increased more than expected in June.
The euro was nearly flat at $1.5567 <EUR=> by midday after
trading as high as $1.5631.
Analysts said euro/dollar would stick to narrow trading
ranges before the Fed's decision on interest rates on Tuesday
and by a following ECB meeting on Thursday.
"Clear signals of rate cuts from central banks, especially
the European Central Bank, will be needed before the dollar
achieves material upside move," currency strategists at UBS AG
said in a note.
While the Fed is expected to stress its ongoing worry about
inflation combined with a slowing economy, ECB's President
Jean-Claude Trichet's statement may focus on his tightening
bias. The ECB raised rates by 25 basis points to 4.25 percent
"(Inflation) is much stronger than expected and will be
problematic for the Fed going forward," said Matthew Strauss, a
senior currency strategist at RBC Capital Markets in Toronto.
The Reserve Bank of Australia is also going to announce its
decision on rates this week. The Aussie dollar <AUD=> hit a
three-month low late last week but rose 0.1 percent ahead of
Tuesday's RBA announcement.
The Australian central bank benchmark rate is 7.25 percent,
and any cut would be the country's first monetary loosening in
"The U.S. dollar may have more upside versus other G10
currencies, such as the Australian dollar, where the monetary
policy outlook is quickly changing in more 'easy' direction,"
Goldman Sachs said in a note.
(Additional reporting by Wanfeng Zhou and Gertrude
Chavez-Dreyfuss in New York; Editing by Walker Simon)
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