August 30, 2013 / 11:03 AM / in 4 years

FOREX-Dollar index steady near 4-week high; better data may help

* Dollar index hovers near Thursday’s 4-week high

* U.S. data later in the session could aid dollar

* Yen supported by Japan exporter flows

By Anirban Nag

LONDON, Aug 30 (Reuters) - The dollar held steady near four-week highs versus a basket of currencies on Friday, underpinned by expectations that upbeat U.S. data would prompt the Federal Reserve to start withdrawing stimulus next month.

Investors were focused on economic data and interest rate differentials as jitters about Syria subsided after the British parliament rejected a motion supporting military action.

That was seen as a setback to Western governments looking to punish President Bashar al-Assad for his alleged use of chemical weapons against civilians.

The interest rate-sensitive two-year U.S. Treasury yield traded near its highest since early July at 0.3947 percent while the 10-year yield was firm at 2.76 percent, widening the gap between comparable German Bund yields and lending support to the dollar.

The dollar index was at 81.994, not far from a four-week high of 82.067 struck on Thursday after a better-than-expected reading of second quarter gross domestic product and a drop in jobless claims bolstered the case for the Fed to begin winding down stimulus next month.

On Friday, U.S. personal consumption expenditure (PCE) data and price index for July, the August Chicago Purchasing Managers’ Index (PMI) survey and University of Michigan confidence data will be the focus.

“U.S. data like rising core PCE deflator and Chicago PMI could come in on the stronger side,” said Chris Turner, head of FX strategy at ING. “We prefer to back the dollar here and look for the index to push to 82.50/70.”

The euro was flat at $1.3235, not far from a two-week low of $1.3219 hit on Thursday. The currency slipped from highs after Eurostat said annual consumer price inflation in August would be 1.3 percent, down from 1.6 percent in the previous month. And while business confidence rose, unemployment remained high at 12.1 percent.

Investors will be wary of buying the euro before next week’s European Central Bank interest rate policy meeting. ECB policymakers are likely to reiterate their pledge that rates will be low for some time as economic recovery sets in slowly.

“Euro zone unemployment shows that the real economy is in dire straits and underlines that the ECB must keep monetary policy super-accommodative for years to come,” said David Brown, economist at New View Economics.

The dollar eased 0.15 percent versus the yen to 98.205 yen , off an intraday high of 98.48 yen. Traders said dollar-selling by Japanese exporters at month-end helped the yen.

The yen’s rise was limited, however, due to ebbing of safe-haven bids as emerging Asian currencies such as the Indian rupee and Indonesian rupiah regained a bit of calm after a sell-off earlier in the week.

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