Sun, Sep 26, 2004 - Page 10 News List

Greenback bounces back after hitting a one-month low

AFP , LONDON

The dollar fell to a one-month low point against the euro on Friday before bouncing back on positive US durable goods data.

The single European currency stood at US$1.2257 from 1.2270 late on Thursday in New York. The dollar traded at ¥110.69 from ¥110.79 on Thursday.

The price of gold fell US$4 to US$407.85 per ounce after hitting US$411.50 on Thursday, the highest level for five months in the wake of a weaker dollar and high oil prices.

"The main driving force behind the FX markets is movements in the bond markets," said Ian Stannard, currency strategist at BNP Paribas.

As 10-year US bond yields moved below four percent earlier in the session, the dollar came under pressure, with the euro hitting its highest level since Aug. 20 of US$1.2363. But the August US durable goods data managed to push those 10-year yields back up above four percent and that drove the dollar higher, Stannard said.

Although the headline number fell by 0.5 percent -- more than the 0.2 percent drop expected -- analysts were encouraged by the core outcome.

Excluding the 6.8 percent drop in orders for transportation goods overall, durable goods orders rose 2.3 percent, the biggest increase since March.

"In short, these data suggest that solid growth in manufacturing activity should continue," said John Ryding, analyst at Bear Stearns.

Analysts said the dollar may start to claw back some more ground if the market's attention shifts back toward growth as opposed to inflation.

Next week's Chicago purchasing managers' index and national Institute for Supply Management services surveys could provide the catalyst for that reassessment, Stannard added.

The dollar has been on the backfoot since the US Federal Reserve's latest quarter-point rate hike on Tuesday, when the accompanying statement was interpreted by the markets as suggesting that US interest rates were unlikely to rise aggressively.

Some of that weakness had dissipated earlier in the session following the release of minutes to the Aug. 10 Federal Open Market Committee (FOMC) rate-setting meeting. The market interpreted the minutes as signalling a steady pace of US interest-rate tightening.

Elsewhere, the yen remained on the backfoot in the wake of further disappointing Japanese economic data, an overnight slide in the Nikkei index of leading Japanese shares and reported tensions with North Korea.

The euro was changing hands at US$1.2257 against US$1.2270 late on Thursday in New York, ¥135.64 (¥135.87), £0.6797 (£0.6837) and 1.5482 Swiss francs (SF1.5469). The dollar stood at ¥110.69 (¥110.79) and SF1.2632 (SF1.2571).

The pound was at US$1.8029 (US$1.7996), ¥199.58 (¥199.03) and SF2.2781 (SF2.2625).

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