May 31, 2013 / 8:32 PM / 6 years ago

FOREX-Dollar firms, bolstered by strong U.S. economic data

* U.S. consumer sentiment strongest in nearly six years
    * Euro hurt by weak data, NZ dollar falls to nine-month low
    * Focus now on next week's U.S. nonfarm payrolls report

    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 31 (Reuters) - The dollar firmed on Friday to
post an eighth straight month of gains against the yen as upbeat
U.S. economic data reinforced the view that the Federal Reserve
could pare back its monetary stimulus sooner than expected.
    The euro, meanwhile, fell against the dollar and yen, hurt
by euro zone data showing record high unemployment and low
inflation. 
    In contrast, U.S. consumer sentiment rose to its highest in
nearly six years in May while business activity in the Midwest
picked up this month after contracting in April. The
stronger-than-expected data offset an earlier report showing
subdued inflation and a drop in consumer spending.
 
    "The dollar is well bid today because of the U.S. data,
which corroborates expectations that the Fed may have to taper
its quantitative easing program soon," said Greg Moore, currency
strategist at TD Securities in Toronto.
    Moore said TD's house view is that the Fed would begin to 
reduce its asset purchases around the fourth quarter of this
year.
    In late trading, the dollar index, which measures the
dollar's value against a basket of six major currencies, rose
0.3 percent to 83.272, notching gains of about 1.8 percent in
May, the best monthly performance since February.
    Data from the Commodity Futures Trading Commission released
on Friday showed currency speculators increased U.S. dollar bets
for a fourth straight week, lifting them to nearly $44 billion
this week, the highest since at least June 2008. 
    The dollar fell 0.3 percent to 100.39 yen, recovering
a bit from a session low of 100.23 yen, its weakest since May 9.
Traders cited strong support at the psychologically important
100-yen level.
    Analysts said the yen could rebound further in the short
term as increasing volatility in equity markets prompts traders
to buy back the safe-haven Japanese currency. But the trend for
yen weakness remains intact amid expectations for aggressive
monetary easing by the Bank of Japan.
    The dollar, which rose 3.2 percent in May versus the yen,
has been up every month since September and has jumped almost 30
percent during that period, the biggest eight-month gain since
the end of the gold standard in the early 1970s.     
    Next week should be critical for the forex market as
investors begin to shift their attention to the U.S. nonfarm
payrolls report for May. The Fed has said it will continue to
buy assets until it sees substantial improvement in the outlook
for the U.S. labor market.
    "Increasingly, the markets are looking towards next Friday's
nonfarm (payrolls) as potentially being the piece of data that
does push the Fed towards tapering," said Camilla Sutton, chief
currency strategist at Scotia Bank in Toronto.
    The euro fell 0.4 percent to $1.2996, off Thursday's
three-week high of $1.3061, according to Reuters data. On the
month, the euro lost about 1.3 percent, its worst showing since
February. Against the yen, the euro was down 0.7 percent at
130.52 yen.
    Unemployment in the 17-nation euro zone rose to 12.2 percent
in April, marking a record since the data series began in 1995.
Consumer price inflation was 1.4 percent in May, far below the
European Central Bank's target of just below 2 percent.
 
    The data raised concerns ECB policymakers may ease monetary
policy further, although a Reuters poll showed most economists
think the ECB will stay on hold. 
    Commodity-linked currencies also fell sharply, with the New
Zealand dollar dropping to a nine-month low of US$0.7935.
It was last down 1.5 percent at US$0.7952. The Australian dollar
 fell 0.8 percent to US$0.9576.
    Central bank policy meetings would also be in focus next
week. The Bank of England, the ECB and the Reserve Bank of
Australia are all scheduled to convene and most analysts expect 
them all to keep their policy rates unchanged.
    UBS analysts said, however, that if there is any central
bank that may just surprise with a rate cut, it would have to be
the RBA.
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