January 17, 2014 / 8:41 PM / 4 years ago

FOREX-Dollar rallies, U.S. data shows improving economy

* Dollar firms on strong U.S. industrial output; housing
starts falter
    * Euro falls to seven-week low against greenback
    * Pound jumps after December sales surprise
    * New Zealand dollar falls 1 percent vs dollar

    By Curtis Skinner
    NEW YORK, Jan 17 (Reuters) - The dollar rose on Friday,
pushing the euro to a seven-week low, after fresh U.S. data
supported the view the world's largest economy is improving
enough to keep the Federal Reserve's stimulus-reducing measures
on track.
    U.S. industrial output rose at its fastest clip in 3-1/2
years in the fourth quarter, data showed Friday. Housing starts
dropped 9.8 percent in December, the largest percentage decline
since April, but housing starts were coming off a multi-year
high in November. 
    The euro fell to a seven-week low of $1.3515 in the
afternoon on the dollar's strong rally. It was last at $1.3530,
down 0.7 percent. 
    The dollar index, a gauge of the dollar's value versus six
major currencies, rose 0.4 percent to 81.232. In
afternoon trading, the yen was keeping pace with the dollar, as
the greenback traded down 0.03 percent to 104.31 yen.
    "Overall, the U.S. economy is making steady, if uneven,
progress and that should keep intact expectations for sustained
Fed tapering this year," said Joe Manimbo, senior market analyst
at Western Union Business Solutions in Washington.
    "U.S. Treasury yields haven't budged much, so as long as
they hold near their elevated levels, that should continue to
underpin the dollar."
    Traders said part of the drop could be technical in nature,
as the euro fell below its 100-day moving average of $1.3563.
But they also pointed to the pickup in the U.S. economy.
    "Fundamentally we're more negative on the euro than the U.S.
 We think the euro should weaken," said Shaun Osborne, chief
foreign exchange strategist at TD Securities in Toronto.
    "There's been some tightness in the funding markets (in the
euro zone) over the turn of the year and that's resulted in some
upward movement in short-term interest rates. And that's
probably being reflected in the exchange rate to a degree," he
    The British pound rose after strong UK retail data was
released on Friday. Annual sales volume was up 5.3 percent as of
December, the fastest rate of growth since October 2004, the 
Office of National Statistics data showed on Friday. That
bolstered the pound. 
    Sterling was lately up 0.39 percent to $1.6416, off
the day's high of $1.6457.
    Whether the 5.3 percent annual jump points to a sustainable
recovery in Britain and more fuel for the pound is unclear.
Strong spending around Christmas may well have been chiefly on
credit and unless wages start to grow in real terms, the Bank of
England may be justified in sticking with ultra-low interest
rates well into next year. 
    The New Zealand dollar was pounded on Friday, falling more
than 1 percent on the day to $0.8256.
    The kiwi has been rallying in recent months on expectations
that the Reserve Bank of New Zealand was on the verge of raising
interest rates. But traders say some hedge funds have taken
profit on the kiwi's gains against the Australian dollar this
week by buying U.S. dollars. 
    "In our G-10 valuation table it is the New Zealand dollar
that now tops the list as the most over-valued currency," Bank
of Tokyo-Mitsubishi UFJ analyst Derek Halpenny said. 
    "Given how well priced an RBNZ rate hike is this year, we
would not expect strong buying from current levels if the RBNZ
does hike this year."
    The Australian dollar dipped to a three-and-a-half-year low
against the greenback by the afternoon on Friday, reaching
US$0.8765. It was last down 0.57 percent to $0.8769,
according to Reuters data.
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