FOREX-Dollar recovers as investors position for Fed meeting

Fri Sep 13, 2013 11:42am EDT

Related Topics

* Talk of Obama choosing Summers for Fed helps lift dollar

* Markets focused on next week's Fed meeting

* U.S. retail sales and other data disappoints

NEW YORK, Sept 13 (Reuters) - The dollar recovered to trade higher against the euro on Friday as investors adjusted positions ahead of the weekend and next week's Federal Reserve policy setting meeting.

After last Friday's weaker-than-expected U.S. non-farm payrolls data, many traders and analysts expect the central bank to announce a modest $10 billion reduction to its $85 billion monthly bond-buying program.

Trading was volatile, however, with disappoinging U.S. data and talk that former Treasury Secretary Larry Summers was about to be named as the next chairman of the Fed, buffeting the dollar during the New York session.

"Despite all the disappointing data the dollar is still supported," said David Song, currency analyst at DailyFX in New York. "Lots of market participants are turning a blind eye to the data and positioning for $10 billion in asset purchases next week."

The dollar was last at 81.593, up 0.1 percent from the previous close of 81.507, and well off the two-week low of 81.356 set on Thursday.

The euro was down 0.1 percent at $1.3278.

Earlier trading in thin volume was influenced by a report from Japanese business daily Nikkei saying the White House was expected to announce the Fed Chairman decision after the Fed's Sept. 17-18 meeting.

Summers is seen as less dovish than Janet Yellen, the other leading candidate to replace Ben Bernanke, whose term ends next January.

Although some traders doubted the report, it gave the dollar and U.S. Treasury yields an added lift. The White House said U.S. President Barack Obama had yet to make a decision on the Fed nomination.

"The dollar will appreciate in the medium term irrespective of whether its Summers or Yellen," said Ken Dickson, investment director of currencies at Standard Life Investments in Edinburgh with $271.2 billion in assets under management. "It's fair to say the market believe Summers will be more dollar positive."

RETAIL SALES

As the New York session opened, the dollar had struggled after U.S. retail sales rose less than expected in August in the latest sign that economic growth slowed in the third quarter.

Retail sales increased 0.2 percent last month as Americans bought automobiles, furniture, electronics and appliances, the Commerce Department said on Friday. Analysts had been expecting a 0.4 percent rise for the month.

A separate report showed consumer sentinment fell in September. The Thomson Reuters/University of Michigan preliminary reading on the overall index of consumer sentiment fell to 76.8 from the final August figure of 82.1..

The reports are some of the last before the Fed meets next week, when more clarity on its "tapering" plans is expected.

"It's a little piece of data that says maybe we are not ready to start slowing (asset) purchases and that's bad for the dollar," said Andrew Dilz, foreign currency trader at Tempus Inc in Washington of the retail sales report.

The Labor Department reported U.S. producer prices rose in August as energy costs rebounded, but underlying inflation remained tame..

The dollar was last down 0.3 percent at 99.29 yen, off an intraday high of 99.97 yen hit after the Nikkei report.

Earlier, the dollar rose against the yen after the government raised its view on the economy for the seventh time this year because of rising capital expenditure.

"In my view, anything that seems to edge away from deflation pressures is more negative for the yen," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.

Analysts said although the dollar has recently struggled to stay above 100 yen, the uptrend was still intact.

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