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US dollar claws back from early losses

The dollar eked out some slight gains versus the euro and the yen on Friday, clawing back from earlier losses that had come despite strong U.S. economic data.

The inability for the dollar to post bigger gains after strong data for second-quarter GDP was seen as a sign that traders are continuing to pare back on dollar-heavy positions.

Not even rising Treasury yields could push the dollar to higher ground. The yield on the benchmark 10-year Treasury note rose to 4.28 percent on Friday from 4.20 percent in reaction to the economic news.

Late afternoon, the euro was at US$1.2123, marginally below US$1.2136 late in New York Thursday. The dollar was at ?112.42 from ?112.12 on Thursday, and at 1.2886 Swiss francs from SF1.2855.

Sterling was at US$1.7580 from US$1.7564 on Thursday and the euro was at ?136.30, from ?136.06.

The US government's first estimate of second-quarter GDP showed that the economy grew at a 3.4 percent annualized pace between June and April, exactly in line with the consensus forecast of economists.

John McCarthy, director of foreign exchange at ING Barings Capital Markets, said that overall the numbers were good and supported the case for the Federal Reserve to keep raising rates at a measured pace.

However, the report failed to live up to some loftier expectations in the market, said McCarthy, and the dollar sold off. The selling continued even after the Purchasing Management Association of Chicago said its index of area business activity rose to 63.5 in July from 53.6 in June. The Chicago survey is watched closely for clues to the index of the Institute for Supply Management's national index, which will be released tomorrow.

Overnight, the dollar rose slightly despite positive data in Japan and the euro zone and further comments from Chinese officials that the new currency regime would respond to market fundamentals.

The yen found little support from a fall in Japan's jobless rate to 4.2 percent, from 4.4 percent and on target growth in industrial production.

The yen also failed to gain from the overnight rise in the yuan to its strongest level since last week's appreciation. The People's Bank of China said the yuan closed at 8.1056 on Friday.

The yuan appreciation matters for the yen, because many analysts believe the further the yuan climbs the greater the likelihood of yen strength.

However, analysts say that the yen may continue to remain under pressure until the upper house of the Diet votes on the keynote postal privatization bill Aug. 5. A defeat of the bill could force an election.
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