* Dollar rises on view that U.S. will still be first to halt
* U.S. growth outperformance to support dollar
* U.S. inflation data shows increase in price pressures
* Investors cautious before Chinese GDP data, Aussie falls
By Julie Haviv
NEW YORK, July 12 The dollar was the market's
darling on Friday as investors bought back the U.S. currency,
confident that the Federal Reserve will be the first of the
major central banks to step away from ultra-loose monetary
The greenback had been reeling since U.S. Fed chief Ben
Bernanke cast doubts on Wednesday over when the central bank
will start slowing its asset purchase program, causing the
dollar to retreat from a three-year high against a basket of six
currencies reached earlier in the week.
The Fed's bond buying program is largely seen as negative
for the dollar as it is tantamount to printing money, but the
U.S. economy is on a much firmer footing than most of the euro
zone, Japan and Britain.
Data on Friday showed U.S. producer prices rose more than
expected in June, pointing to an apparent increase in
inflationary pressures that could make the U.S. Federal Reserve
more comfortable about reducing its monetary stimulus.
"There is some argument for suggesting that the shock effect
of a dovish Bernanke has largely been digested," said Alan
Ruskin, global head of foreign exchange strategy at Deutsche
Bank in New York.
"Even if he tries to avoid changing his tone any policy
surprises are more likely to be in a positive dollar direction
than the reverse," he said.
Bernanke said on Wednesday that a highly accommodative
monetary policy would be needed for the foreseeable future,
pouring cold water on investor expectations that the Fed would
start unwinding its stimulus programme in September and tighten
policy in late 2014.
In early New York trade, the dollar index rose 0.5 percent
to 83.158, although it was still down on the week. The dollar
was up 0.6 percent against the yen at 99.48 yen.
"We are still structurally bullish dollar across a range of
currencies including the euro and sterling," said Chris Walker,
a currency strategist at Barclays.
The dollar had previously been gaining on the back of rising
U.S. Treasury yields and widening interest rate differentials in
"What we saw this week was a washout of long dollar
positions, but also a realisation that Fed tightening is still
some way out. It's tapering of stimulus that will come first,"
said Walker, adding that high-yielding currencies such as the
Australian dollar would lose more ground in coming weeks.
Traders are also cautious about the commodity-linked Aussie
before the release of Chinese growth data on Monday.
The Australian dollar was down 1.7 percent at $0.9034.
Analysts forecasts' point to China's economic growth slowing
modestly to an annual 7.5 percent in the second quarter
, but many economists see downside risks after a run of
Next week could also see solid U.S. retail sales and housing
data that would again highlight the growth divergence between
the United States and its peers the euro zone, Britain and
"We believe that the dollar's setback after the policy
events of the past week is likely to remain limited and that a
durable multi-year recovery is still in the early stages of
development," Morgan Stanley strategists said in a note.
"Indeed, we see the current correction as a renewed
opportunity to establish bullish medium-term positions," the
The European Central Bank, the Bank of England and the Bank
of Japan are all looking to ease monetary policy further. On the
other hand, an outperforming U.S. economy should support
expectations that the Fed will be the first to pare some of its
stimulus this year.
Against the dollar the euro was down 0.5 percent at $1.3024
The euro was weighed by comments made by one of the ECB's
top policymakers, Peter Praet, that the bank will keep interest
rates at current levels or cut them even further, as long as
inflation remains moderate.
Also weighing on the single currency were Portuguese bond
yields, which climbed after Lisbon delayed its creditors' next
review of the country's bailout due to a political crisis,
bucking the wider trend towards lower yields in other euro zone