Sun, Feb 19, 2006 - Page 10 News List

Greenback edges up versus yen, but falls against euro

AFP AND CNA , NEW YORK AND TAIPEI

The US dollar rose against the yen but fell versus the euro on Friday as the market digested a stronger-than-expected report on Japanese economic growth and mulled the path of US interest rates. The euro edged up to US$1.1934 at 10pm GMT from US$1.1900 in New York late on Thursday.

The US dollar rose to ¥118.04 from ¥117.62 on Thursday.

With attention focused on the yen, Japan's Cabinet Office said the economy grew at a faster-than-expected 1.4 percent in the fourth quarter, an annualized rate of 5.5 percent, fueled by robust corporate spending and housing investment.

But the market focused on the GDP deflator, a key gauge of the level of deflation, which fell 1.6 percent, the 31st consecutive quarterly decline.

Traders took this "as a sign that the Bank of Japan may not shift policy as soon as the market had been expecting," Jon Gencher at BMO Nesbitt Burns said.

In the US, results from the University of Michigan survey showed the consumer sentiment index dropping unexpectedly to 87.4 this month from 91.2 last month, well below forecasts for a flat reading of around 91.1.

"The surprising fall in the Michigan US consumer confidence index in February is a note of caution that, despite the flying start to the first quarter, the outlook for consumer spending remains shaky," Keith Gyles at Capital Economics said.

The US dollar had staged a tentative but short-lived rally earlier in the day after the latest US producer price index report came in above expectations.

Headline wholesale prices rose by 0.3 percent last month and core prices by 0.4 percent, both above expectations for rises of 0.2 percent.

"The larger-than-expected rise in [the] headline and core PPI helped to reinforce the view that the Fed will continue raising interest rates at its next two meetings," said Michael Woolfolk, senior currency strategist at Bank of New York. "Nonetheless, the core inflationary data remains particularly benign."

Ronald Simpson, analyst at Action Economics, noted that the dollar failed to hold its gains because on a year-over-year basis, the core PPI last month was up 1.5 percent, slower than the 1.7 percent year-over-year gain seen in the December report.

"The bond market more or less took the PPI as good news," he said. "Yields have declined as a result, and the lower yield does not help the dollar at all."

US markets are closed tomorrow for the Presidents Day public holiday.

After that, attention will turn to the minutes to the last US Federal Reserve rate-setting meeting on Jan. 31, to be released on Tuesday, followed by the release of US inflation data on Wednesday and durable goods orders on Thursday.

In late New York trade, the US dollar stood at 1.3103 Swiss francs from SF1.3100 on Thursday.

The pound was being traded at US$1.7410 after US$1.7393 late on Thursday. The US dollar shed NT$0.011 against the New Taiwan dollar in Taipei on Friday to close at NT$32.390.

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