RPT-FOREX-Dollar up vs yen after slide, Aussie climbs
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TOKYO, May 19 (Reuters) - The dollar edged higher against the yen on Monday, trimming some losses made late last week when a plunge in U.S. consumer confidence underscored problems facing the U.S economy.
The dollar fell on Friday after the Reuters/University of Michigan index of consumer confidence highlighted the threat to economic growth, dropping to 59.5 in May -- the lowest level since June 1980. [ID:nN16406494]
The data also showed that consumers' short-term inflation expectations hit a 26-year high, and eclipsed the impact of a report showing increases in construction starts for new U.S. homes and new building permits.
The Australian dollar rose in the wake of such U.S. economic indicators and climbed to a 24-year peak of around $0.9570 AUD=D4 on Monday. The Aussie later trimmed some gains to stand at $0.9543.
"Judging from the dollar's sharp reaction to the Michigan report, the dollar looks vulnerable to falling against the yen on any negative factors," said a trader for a Japanese bank.
The dollar inched up 0.1 percent from late U.S. trading on Friday to 104.20 yen JPY=.
The euro was little changed from late New York at $1.5586 EUR=.
The surprisingly steep fall in U.S. consumer confidence slightly tempered market expectations for the Federal Reserve to raise interest rates later in the year. FEDWATCH
U.S. short-term interest rate futures show a roughly 80 to 85 percent chance of the Fed raising rates by 0.25 percentage point to 2.25 percent by year-end. They had been fully pricing in such an increase before the consumer confidence data.
The mix of weak consumer confidence and spike in inflation expectations could bode ill for the dollar, said the trader for the Japanese bank.
The dollar might fall against the yen if U.S. producer price data due on Tuesday reinforces worries about stagflation in the U.S. economy, the trader said.
The Bank of Japan is widely expected to keep interest rates at 0.50 percent at a two-day policy meeting that starts on Monday. [ID:nT305710]
