Thursday November 16, 2006 - 22:07:41 GMT
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Reuters - www.reuters.com
FOREX-Dollar edges higher after tame data
FOREX-Dollar edges higher after tame data
Thu Nov 16, 2006 4:47pm ET136
By Vivianne Rodrigues
NEW YORK, Nov 16 (Reuters) - The dollar rose on Thursday after economic data reinforced the view that U.S. growth and inflation were easing at a moderate pace, and despite a dip in foreign demand for U.S. assets.
The greenback initially dipped across the board on data showing the consumer price index fell 0.5 percent last month while the core consumer price index -- which strips out volatile food and energy prices -- was up just 0.1 percent. For details, please see [ID:nN16254970].
The CPI data followed a report earlier in the week showing tame wholesale price inflation in October, but analysts said neither report made a strong case for lower U.S. interest rates.
"In one way, tame inflation numbers also indicate the Fed will be out of the picture for some time and, at least, will not need to cut interest rates," said David Durrant, chief currency strategist at Bank Julius Baer & Co.
"That may be the reason why we are seeing some support for the dollar even as inflows fell," he said, referring to a report during the day that showed a drop in foreign demand for U.S. assets.
Falling U.S. interest rates when rates in the euro zone and elsewhere are rising would erode the dollar's yield advantage and prompt investors to buy or hold other currencies.
The Federal Reserve has kept U.S. interest rates on hold at 5.25 percent since June, though minutes from its last policy meeting revealed that inflation is still its main concern.
In late afternoon in New York, the euro was down 0.25 percent at $1.2799 . Against the yen, the dollar edged up 0.15 percent to 118.20 yen .
"We're seeing moderate growth and moderating inflation. It's exactly what the Fed wants and it doesn't give a really good reason for the dollar to move significantly," said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey.
The dollar got a small boost from data showing foreign purchases of U.S. assets remained positive to the tune of $53.7 billion in September, even though they edged lower.
The number caused some confusion because the U.S. Treasury unveiled the data in a new format that captured, for the first time, investment in short-term securities as well as estimates of non-market flows of transactions.
But analysts said interest in long-term purchases -- the most important indicator for the U.S. ability to finance its large trade deficit -- remained healthy.
"I don't see any great falloff in overseas capital investing in U.S. securities. These numbers are in line with the long-term trend," Trevisani said.
Elsewhere in the currency markets, the New Zealand dollar was the top performer on the day, gaining nearly 0.9 percent to $0.6649 , while the Australian dollar was up 0.25 percent at $0.7666 .
Traders said both were benefiting from carry trades, in which investors borrow cheaply in yen and then buy higher-yielding currencies.
Overnight, Bank of Japan Governor Toshihiko Fukui dampened expectations of another Japanese interest rate hike in 2006 when he said he didn't know the timing of future rate moves.
(Additional reporting by Kevin Plumberg, David McMahon and Steven C. Johnson in New York)
Â© Reuters 2006. All Rights Reserved.
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