Dollar Rises Against Euro as U.S. Report May Ease Concern About Inflation
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Dollar Rises vs Euro as U.S. Report May Ease Inflation Concern
London, Aug. 17 (Bloomberg) -- The dollar rose to a three-
week high against the euro on expectations a U.S. consumer price
report will show subdued inflation.
Evidence of tame inflation may reduce the likelihood the
Federal Reserve will soon embark on a series of rate rises, and
lure investors to U.S. stocks, bonds and the dollar.
``The market has to reassess' the extent of Fed rate
increases, said Derek Halpenny, an economist at Bank of Tokyo-
Mitsubishi. As investors scale back their expectations, stocks
and bonds are recouping recent losses and ``sentiment is changing
on the dollar.'
The euro dropped to $1.0519 from $1.0566. The dollar was
little changed versus the yen, at 114.72 yen compared with 114.74
yen. Earlier, the yen rose to its highest level ever against the
euro and gained against the dollar after Bank of Japan Governor
Masaru Hayami suggested the bank may not soon intervene in the
currency market to slow the yen's rise.
Japanese companies, which can be hurt by yen strength,
shouldn't rely ``on authorities' actions' to protect them from
currency swings, said Hayami. Some traders took the remark as a
green light to buy yen.
``Expectations for intervention have been fading,' said
Kosuke Hanao, a senior manager for foreign exchange at Industrial
Bank of Japan Ltd. in Tokyo.
Japanese officials have staged at least seven rounds of
intervention since June 10, spending an estimated $30 billion, to
keep a rising yen from impeding Japan's recovery.
U.S. Report
The CPI, slated for release at 1:30 p.m. London time, is
expected to have risen 0.3 percent in July after showing no
change in May and June, according to a Bloomberg News survey. The
core rate of inflation, excluding food and energy, probably rose
0.2 percent last month.
``I don't think we're going to see anything that's going to
throw us over the edge' on inflation in the U.S., said Jamie
O'Neill, a senior trader at First Union Corp. ``We'll see further
strength in equities and a stronger dollar.'
The dollar could rise 1 percent to 2 percent against the
euro in the coming days, and it could rise versus the yen,
O'Neill said.
Traders and investors will scour the CPI report for clues to
whether the Federal Reserve needs to raise interest rates more
than 25 basis points at its next policy meeting on Aug. 24 to
head off inflation.
Rising prices erode the value of bonds, while the higher
rates needed to contain inflation can hurt stocks. That saps
demand for dollars needed to buy those securities.
Risks
A report that comes ``in line with expectations would be
really dollar-positive,' said Claudio Piron, a treasury
economist at Standard Chartered. Still, ``there are risks you can
get a very strong number,' given rising energy prices in July,
he said.
``If the core rate surges to 0.4 or 0.5 percent, the dollar
could plunge,' said Hikari Sekioka, vice president for the
foreign exchange and international treasury division at Sakura
Bank Ltd. in Tokyo.
In Tokyo trading the yen retreated against major currencies
amid signs of growing military tension in Asia that lured some
traders to the perceived safety of the dollar.
Dow Jones News Service cited the Russian news agency Itar-
Tass to say North Korea is ready for a test launch of a new
ballistic rocket. Meanwhile China's state-run Xinhua news agency
reported Chinese Marines are practicing amphibious landings in
the South China Sea. Investors tend to hold on to dollars as a
haven in times of global strife.
Reports on tensions in ``North Korea and China lifted the
dollar,' said Hirofumi Ise, head of foreign exchange at ING Bank
NV. ``This kind of rumor doesn't usually sustain' the currency
market. ``If the talks are true, though,' the dollar could have
kept its gains.
Taiwan's defense ministry said the Chinese exercises didn't
pose a threat, according to Taiwan's Central News Agency.
Taiwan President Lee Teng-hui's reference to the China-
Taiwan relationship last month as ``state-to-state' prompted
Beijing to issue a series of threats against the island nation it
regards as a renegade province.
North Korea fired a ballistic rocket over Japan into the
Pacific Ocean last August, raising tension between Japan and
North Korea.
The yen may soon resume its rise because of growing
expectations that Japan's worst recession in half a century is
ending. Japan said yesterday its industrial output rose a revised
3.2 percent in June, the biggest increase in 29 months.
A brightening outlook in the world's second-largest economy
fueled demand for Japanese stocks and the yen needed to purchase
them. |
