Sun, Dec 24, 2006 - Page 10 News List

US dollar gains on euro in lackluster pre-holiday trading


The US dollar gained slightly against the euro in pre-Christmas holiday trading on Friday despite fairly lackluster US economic news as some currency funds opted to cash in on recent euro gains, traders said.

At 2200 GMT, the euro was changing hands at US$1.3141, slightly lower compared with US$1.3173 late on Thursday.

The US currency picked up more momentum against the Japanese yen, rising to ?118.75 compared with Thursday's ?118.32.

The dollar -- which has fallen heavily against the euro this year as US economic growth has cooled -- gained as the US Commerce Department reported that consumer spending rose 0.5 percent last month, outpacing a 0.3 percent gain in income.

The increases were below Wall Street forecasts for a 0.6 percent increase in spending and 0.4 percent for personal income.

In a separate economic report the government said orders for US durable goods rebounded 1.9 percent last month following a sharp drop the previous month, as transportation equipment orders surged.

The rebound was better than most Wall Street analysts' forecasts that durable goods orders would rise 1.5 percent last month. Orders had plummeted 8.2 percent in October.

Analysts said the dollar's moderate gains were more related to some market participants deciding to cash in euro-related profits rather than to the day's economic news.

In Europe, news that French consumers loosened their purse strings last month was offset by a drop in a business sentiment survey.

At the same time, there were signs that inflation in Germany was not letting up with three states reporting a monthly rise of at least 0.7 percent this month.

As the European Central Bank is clearly focused on future inflation risks, Daniel Katzive at UBS said he expected a further rate hike in February.

"With rate markets only pricing roughly 30 percent odds of a February move, we see scope for euro gains," he said.

The ECB's next rate-setting meeting comes on Jan. 11, and its president, Jean-Claude Trichet, may well signal that a hike will occur in February, Katzive added.

Earlier this week, Trichet predicted price pressures in the months ahead in what was considered to be a hawkish warning to the European parliament.

The pound meanwhile was in good demand as traders mulled the possibility of a quarter-point rate hike by the Bank of England to 5.25 percent next February.

"Helping underpin the pound is the risk of another 25 basis point UK base rate rise to 5.25 percent in February and a further 25 basis point hike beyond," said Robert Howard at Thomson IFR Markets.

The pound was priced at US$1.9590, against US$1.9612 a day earlier.

The US dollar rose against the new Taiwan dollar on the Taipei Foreign Exchange on Friday, gaining NT$0.012 to close at NT$32.565.

A total of US$663 million changed hands during the day's trading.

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