Sun, Jul 17, 2005 - Page 10 News List

Manufacturing bounce boosts dollar

FOREIGN EXCHANGE The US currency lifted across the board on a report that the Empire State Manufacturing index jumped to 23.91 this month from 10.49 last month


The US dollar was higher versus the euro and most other major currencies on Friday, making its gains early in the New York session on a bounce in the Empire State Manufacturing index for this month.

However, the US dollar was slightly lower versus the yen with the Japanese currency gaining from renewed speculation about a possible revaluation of the Chinese yuan and softer oil prices.

Late in New York, the euro was at US$1.2043, down from US$1.2087 late Thursday. The US dollar was at ?112.24 from ?112.34, and at 1.2949 Swiss francs from SF1.2903.

The pound slipped to US$1.7515 from US$1.7562, while the euro was at ?135.15 from ?135.73.

After starting the US session little changed against the euro, the dollar lifted across the board when the Federal Reserve Bank of New York reported its Empire State Manufacturing survey jumped to 23.91 in July versus 10.49 in June.

The data offset lower-than-expected wholesale inflation figures, with the producer price index unchanged for June and the core index down 0.1 percent versus expectations of 0.4 percent, and 0.1 percent, respectively.

Nick Bennenbroek, foreign exchange strategist at Brown Brothers Harriman, said as the dollar moved higher it pushed the euro through key support at US$1.2050, triggering options-related buying and stop-loss orders, which further exacerbated movement.

He said that since the consumer price data on Thursday also showed subdued inflation, it dulled the effect of the PPI number, leaving the focus more firmly on the Empire State Manufacturing data. Despite the sluggish inflation figures, economists are expecting the Federal Reserve to continue raising interest rates.

Later, the Federal Reserve reported that US' industrial production was up a strong 0.9 percent last month, versus expectations for a 0.4 percent rise, and compared to a revised 0.3 percent rise in May. Much of the rise came in utilities, which were up 5.3 percent as hot weather increased demand. Manufacturing was up 0.4 percent from 0.5 percent in May.

The US currency barely reacted to the data as the market fell into into very narrow-trade ranging, with the euro trapped in a range of US$1.2022-US$1.2060. Traders said volumes were very thin, especially once London exited trading.

Overnight, the euro had jumped as high as US$1.2137, aided influenced by comments from Dutch central bank governor and ECB Governing Council Member Nout Wellink, who said the option of lowering euro-zone rates "is not on my mind" in an interview with the International Herald Tribune on Thursday.

The up and down movement of the dollar in overnight and early New York trading rounded off what was a choppy seven days for currency markets. Traders said the combination of lower summer volumes and position adjustment from investors who were heavily long dollars has kept the U.S. currency bouncing up and down.

Meanwhile, the dollar was softer versus the yen as currency traders focused again on the possibility that China would end its effective currency peg.

Senator Charles Schumer said on Friday that the Bush administration and members of Congress believe China is likely to begin revaluing the yuan in the coming months.

Schumer said lawmakers were told that China would soon change its current policy of linking the yuan at a fixed rate to the dollar.

Schumer and Sen. Lindsey Graham have delayed a bill that would impose penalty tariffs on Chinese imports if the Asian giant doesn't change its currency system soon. The senators met last month with Treasury Secretary John Snow and Fed Chairman Alan Greenspan.

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