The US dollar gained against the euro and the yen after reports showed US retail sales and consumer confidence surged, easing investor concern that the war in Iraq was slowing the world's biggest economy.
Traders said a stronger economy will lure more investment, helping offset a current account gap that drains about US$1.5 billion a day from the US. The dollar rose against 12 of the 16 most widely traded currencies.
"People are starting to feel more comfortable with investing in the US and buying stocks," Rick Zauderer, who helps manage US$800 million at Friedberg Mercantile Group in Toronto. "The reports suggest some underlying strength to the US economy. Now that the war is coming to an end, people will focus on a long-term view of the economy."
The dollar rose to Japanese Yen 120.52 at 5pm in New York from Japanese Yen 119.67. It strengthened to US$1.0755 per euro from US$1.0782. The dollar pared its advance after the Standard & Poor's 500 Index reversed a gain of as much as 1.4 percent. Friday's rally sent the dollar to a second week of gains against the yen and erased most of its losses in the week against the euro.
Investors have "to be convinced that the economy is going to do well in the aftermath of the war, and if it does well, it will draw in enough foreign investment to keep the dollar strong in the face of a yawning current account deficit," said Daniel Katzive, a currency strategist at UBS Warburg, the second-biggest trader in the US$1.2 trillion-a-day foreign exchange market, in Stamford, Connecticut. "Today's numbers are a good start to" building that confidence.
Sales at US retailers jumped 2.1 percent in March, reversing a 1.3 percent drop in February, the Commerce Department said. The increase was the largest since October 2001. The University of Michigan said its consumer confidence index climbed to 83.2 this month from a nine-year low of 77.6 in March.
"People are feeling better, now that there will be change of regime in Iraq," Zauderer said. "Right now, there is less of a terrorist threat in the US."
The US said Saddam Hussein's political faction was finished as allied forces battled loyalists in the dictator's home of Tikrit and sought to curb chaos and looting in Baghdad and other major cities. ``The regime is gone,'' spokesman Ari Fleischer told reporters at the White House.
The US economy will expand 2.2 percent this year after growing 2.4 percent last year, the International Monetary Fund said this week. Some analysts said that may be strong enough growth to attract enough investment to finance the deficit in the current account, the broadest measure of trade. The gap widened to a record US$136.9 billion in the fourth quarter.
The rise in retail sales and confidence is "very helpful to the dollar after several sessions of poor economic numbers," said Craig Larimer, head of international market analysis at Banc One Capital Markets Inc. in Chicago. Still, "the market is really going to want to see more performance on production and employment and that's a ways down the road."
Larimer forecasts the dollar will rally to as strong as US$1.01 per euro in the next three months.
Treasury Secretary John Snow yesterday said efforts to boost economic growth worldwide would top the agenda at a meeting of finance ministers from the G7 industrial countries today and Saturday. One of the biggest concerns is Japan, which the International Monetary Fund estimates will grow just 0.8 percent this year.
RSS