Wednesday July 12, 2006 - 21:36:58 GMT
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Reuters - www.reuters.com
FOREX - Dollar climbs on trade data; yen dips on BOJ doubt
NEW YORK, July 12 (Reuters) - The dollar rallied broadly on Wednesday after news the U.S. trade deficit expanded less than expected in May.
The greenback's biggest gains were against the yen. The Japanese currency was hurt by remarks by the Japanese finance minister which raised concerns that the Bank of Japan may not raise interest rates this week as much as initially expected.
This week, the yen had risen to one-month highs against the dollar and three-week highs on the euro as traders upped bets for a quarter-percentage-point BOJ rate increase on Friday, but traders then rapidly turned tail and pared yen holdings.
"The (Japanese) finance minister put the fuel on the fire and the trade number got the fire more heated," said Brian Taylor, chief foreign exchange dealer with Manufacturers and Traders Bank in Buffalo, New York.
Late afternoon in New York, the dollar was up 1.1 percent at 115.48 yen , its best one-day advance in three weeks.
At its session high the dollar was posting its biggest one-day gain in percentage terms since January 2005, according to Reuters data.
The euro rose 0.5 percent on the Japanese currency to 146.68 yen but fell 0.6 percent against the dollar to $1.2699.
The dollar rallied after the U.S. government said the international trade deficit widened in May to $63.84 billion from a downwardly revised $63.34 billion in April. Analysts had forecast a gap of $64.90 billion. For details see [ID:nN12263949].
"The number is mildly dollar-positive. Overall, it adds to the dollar's upbeat tone ... which started with support overnight thanks to a rally in dollar-yen," said Omer Esiner, senior market analyst at Ruesch International in Washington, D.C. "The deficit remains at an elevated level, but for the near term the dollar has jumped this hurdle," he added.
The dollar traded near three-month highs against the Canadian dollar , last changing hands at C$1.1341, up 0.2 percent on the day.
The main focus after the trade data remained positioning for the first potential rate rise from the BOJ in six years.
Finance Minister Sadakazu Tanigaki said on Wednesday Japan's near decade-long bout of deflation was not over yet, which caused many to mull the risk the BOJ may not raise the benchmark overnight call rate by as much as the quarter point financial markets had largely priced in.
But Japan's biggest financial daily, Nihon Keizai Shimbun, said in Thursday's edition the Bank of Japan is "leaning toward" raising interest rates by a quarter point on Friday.
Without citing sources, the paper said a majority of the nine-member policy board believes that economic growth and rising prices warrant raising rates.
The article also said the BOJ is considering raising the discount rate to around 0.4 to 0.5 percent from 0.1 percent.
"Traders are on the edge of their seats in anticipation of Friday's BOJ decision," said Peter A. Rosenstreich, market strategist at Danish-based Saxo Bank in a research note. (Additional reporting by Steven C. Johnson)
Â© Reuters 2006. All Rights Reserved.
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