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Friday, October 16, 2009
Dollar Gets A Lift From Weak Confidence Data
By Deborah Levine
The U.S. dollar gained ground versus the euro and Japanese yen on Friday as data showed gains in foreign funds flowing to the U.S. and weakness in consumer confidence spurred selling of stocks.
The dollar and British pound rebounded from recent lows scored the previous day as traders reversed bets that the dollar will fall further, and U.S. equities declined, easing pressure to continue selling the greenback.
"Going into the weekend, today's sell-off in the Dow provides players with a convenient excuse to take profit on short U.S. dollar positions and reload for next week," Michael Woolfolk, senior currency strategist at The Bank of New York Mellon, wrote in emailed comments.
The U.S. dollar index (DXY) rose to 75.677, up from 75.480 in North American trade late Thursday after sliding to a series of 14-month lows earlier in the week.
The dollar bought 90.88 yen, up from 90.59 yen, giving up bigger gains earlier in the session.
The euro traded at $1.4882 versus the dollar, down from $1.4933 after failing to breach the psychologically important $1.50 level.
Reducing the attractiveness of equities and supporting the dollar, a report showed U.S. consumer sentiment pulled back more than anticipated this month.
The University of Michigan/Reuters index fell to 69.4 in early October from 73.5 in September. Analysts surveyed by MarketWatch expected, on average, for the index to read 72.
That followed a report showed U.S. industrial production jumped 0.7% last month, topping expectations. Capacity utilization rose to 70.5% in September from a revised 69.9% in August, also higher than anticipated.
"These diverging signals highlight the recent uncertainty" over whether third-quarter growth can be sustained, analysts at Action Economics wrote. "The downside risks as we approach year-end are clear."
An earlier report from the U.S. Treasury Department showed foreign investors nearly doubled purchases of U.S. assets in August.
Foreign official buyers sold more short-term assets and bought long-term securities. Private investors in other countries bought more U.S. equities and favored longer-term assets of all types, indicating more preference for riskier assets than Treasurys, noted foreign-exchange analysts at Barclays Capital.
Gains in stocks and other indications of investor willingness to make more aggressive investments over the last several months have been detrimental to the dollar, as its safe-haven status is no longer desired.
"Our overall assessment is that these numbers remain mediocre but are not nearly as negative as the July release," Barclays analysts wrote in a note.
Focus also returned to the lack of fluctuations in the Chinese yuan, a day after the U.S. Treasury repeated its previous finding that China was not formally manipulating its currency.
The People's Bank of China set the yuan's official rate 6.8270 against the dollar Friday, according to reports, down slightly from 6.8267 Thursday. The yuan is allowed to fluctuate on 0.5% on either side of the official daily rate.
China's foreign-exchange policy risks "unwinding" some of the progress made in reducing global trade imbalances during the financial crisis, the U.S. Treasury said Thursday in its latest report on foreign-exchange trading.
The dollar index is still headed towards a second weekly loss, sliding 1% from last Friday. The yen has seen a roughly 1% increase since last Friday. The shared euro is still up about 1.4% versus the dollar this week.
With much vocalization about the fall in the dollar's value, some analysts and policy makers alike point to the still orderly decline that has left the dollar index down 7% this year, which is not abnormal given the reversal of investor's need for safety in the credit crisis and a readjustment of imports and exports as consumer demand has slowed.
"No policy maker is going to argue for a weak dollar," said Dallas Federal Reserve President Richard Fisher said Friday, according to news reports. Recent movement in the dollar "has to do with trade adjustment."
The battered pound was the biggest winner among major currencies, continuing to power higher versus the euro and the greenback a day after a Bank of England policy maker signaled satisfaction with the impact of the central bank's quantitative-easing strategy.
The British pound gained ground versus the dollar rising to $1.6340, up from $1.6270 Thursday. The euro slipped 0.9% versus sterling to 91.06 pence.
The British currency has advanced 2.6% this week on dollar.
Traders said the remarks by Paul Fisher, the bank's director of markets and member of the Monetary Policy Committee, were sufficient to trigger an explosive round of short covering. U.S. Commodity Futures Trading Commission data released last week showed a historic build-up of short positions against British pound futures, noted analysts at Brown Brothers Harriman.
"The fundamentals for the pound are still negative, with interest rate differentials favoring other currencies," they wrote. "Next week's minutes of the Bank of England meeting may also reinforce the fragile nature of the economic recovery, and the likelihood of rates remaining at this low level for some time."
Others cautioned that betting against the pound in the midst of a run of unexpectedly strong third-quarter earnings report by major banks could prove perilous.
"We would caution against being short GBP [selling the British pound] when U.S. bank earnings are again generally beating expectations, as markets treat GBP as a proxy for the performance of the financial sector," said Adam Cole, global head of FX strategy at RBC Capital Markets in London.
"Our short-term models also continue to show GBP heavily oversold relative to short rate expectations and bank stocks, consistent with other evidence that short-GBP is a seriously overcrowded trade currently," he wrote in emailed comments.
August trade data for the euro zone showed the 16-nation region swung to a larger-than- deficit with the rest of the world.
The figures come amid rising unease among euro-zone officials and businesses over the strength of the euro.
From a technical standpoint, the euro remains "slightly overbought" versus the dollar, "so perhaps its time to take a breather today," wrote Nicole Elliott, a technical analyst at Mizuho Corporate Bank.
Nonetheless, a "weekly close above $1.4800 would confirm that the next leg of the (euro) rally has started," she said.
This article taken by topforexnews.com.