Wednesday May 16, 2007 - 21:10:25 GMT
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FOREX NEWS-Dollar hits 3-mth high vs yen after solid data
FOREX-Dollar hits 3-mth high vs yen after solid data
Wed May 16, 2007 4:41 PM ET
(Recasts, update prices)
By David McMahon
NEW YORK, May 16 (Reuters) - The dollar rose for the first time in four sessions on Wednesday and hit a three-month high against the yen after reports showed unexpectedly strong growth in U.S. housing starts and industrial output last month.
The solid economic data backed up a view that the U.S. economy is not slowing quickly enough to prompt a rate cut by the Federal Reserve until at least late in the year. For details see nN16185478.
Traders, however, said the dollar's move was mainly technically driven after a few big sellers of the euro triggered a wave of automatic buy orders for the greenback.
"We're taking today's data as a sign that the U.S. economy is likely to pick up," said Meg Browne, senior currency strategist at Brown Brothers Harriman in New York. "But this isn't enough to change the fundamentals that much and what we have today is really more of a technical correction."
The yen's decline came ahead of Japanese economic growth data due on Thursday that is expected to support a view the Bank of Japan will keep its interest rates among the lowest in the industrialized world for some months to come.
In late trade in New York, the euro was down 0.55 percent at $1.3515 , posting its biggest daily drop in more than two months and well short of a record peak of $1.3683 hit on electronic trading system EBS last month.
Dollar buyers at the London fix triggered automatic sell orders in the euro near $1.3560, which helped push the currency to session lows, traders said.
The dollar rose 0.35 percent to 120.65 yen after touching 120.83 yen on EBS. That was the highest since Feb 26, a day before the dollar plunged almost 3 yen because of a big shakeout in carry trade positions.
With Japanese interest rates at 0.5 percent, the yen has been a popular currency to borrow cheaply and invest in higher-yielding assets around the world in so-called carry trades.
The Bank of Japan is expected to keep rates on hold at the conclusion of a policy meeting on Thursday, and is not seen likely to raise borrowing costs for several months yet.
Data on Thursday is expected to show the Japanese economy grew at an annualized pace of 2.7 percent in the first quarter, more than double the pace of U.S. growth in the same period, a Reuters poll shows.
The dollar has slumped across the board this year, declining almost 2 percent against a basket of major currencies as faster growth abroad has reinforced a view that the dollar will continue to lose its allure to yield-hungry investors.
In contrast to expectations for a rate cut in the United States later this year, the European Central Bank is seen raising rates at least once more this year and some see the Bank of England further raising borrowing costs too.
But some short-term players are wary that in the near term at least, the dollar's decline is losing momentum.
"Our bearish dollar view is unchanged, but we hate the short-term price action," analysts at Citigroup wrote to clients, adding that they were cutting back their positions betting on dollar weakness.
(Additional reporting by Vivianne Rodrigues)
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