Tuesday July 11, 2006 - 21:47:18 GMT
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Reuters - www.reuters.com
FOREX-Dollar slips ahead of U.S. trade data for May
NEW YORK, July 11 (Reuters) - The dollar fell on Tuesday as investors adjusted positions ahead of the release of data expected to show a higher U.S. trade deficit for May.
The euro zone single currency was 0.3 percent higher against the dollar at $1.2771. .
The trade gap likely swelled to the widest in four months as surging oil prices helped inflate the bill for imports, according to a Reuters poll. For details, see [nN10204691].
While investors are mostly focused on the outlook for U.S. interest rates relative to those set by other central banks around the world, a wider-than-anticipated trade deficit could cause some volatility in the near term, traders said.
"The market will be hyperventilating for a little while after the number," said Joe Francomano, director of foreign exchange at Erste Bank in New York.
The Department of Commerce on Wednesday is expected to report that the U.S. international trade deficit widened to $64.9 billion in May from April's $63.4 billion shortfall, according to the median forecast from a Reuters survey of 71 economists. That would be the widest since a $66.2 billion shortfall in January.
The dollar was down 0.1 percent against the yen at 114.18 yen , having hit a one-month low of 113.31 yen on Monday, while the euro was up 0.3 percent against the Japanese currency at 145.87 yen .
The dollar was also hurt against the yen by expectations by most investors that Japan will raise interest rates for the first time in six years and put an end to its policy of zero interest rates, which should keep the yen on a firm footing.
Many analysts believe the BOJ is set to lift rates despite the Japanese government's objections, much as the bank did when scrapping the previous quantitative easing policy in March.
Japanese Finance Minister Sadakazu Tanigaki repeated on Tuesday that zero rates are desirable.
Weaker-than-expected U.S. jobs data last week cut back expectations for a Federal Reserve rate hike in August, while investors widely expect the European Central Bank to raise rates next month.
The trading exception of the day was the dollar's climb to near a three-month high against the Canadian dollar after the Bank of Canada kept interest rates unchanged and gave no signal there would be any more rate hikes soon.
The BOC left rates at 4.25 percent, as expected, but surprised markets with a much less hawkish statement on the economic outlook that gave no indication that rate hikes would be forthcoming any time soon.
"The BOC was more dovish than expected in their statement," said George Davis, chief technical analyst at RBC Capital Markets in Toronto. "Essentially the impact was Canadian-dollar-specific."
The U.S. dollar was up 0.7 percent against the Canadian dollar at C$1.1315, around its highest since late April and up from C$1.1245 just before the BOC statement.
Sterling was up 0.3 percent against the dollar at $1.8465. The dollar fell 0.4 percent against the Swiss franc to 1.2254 Swiss francs .
Â© Reuters 2006. All Rights Reserved.
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