FOREX-Dollar gains before US CPI, sterling slumps

Reuters: [2008-05-14 13:18:00]

(Changes byline, adds quotes, updates prices)

By Naomi Tajitsu

LONDON, May 14 (Reuters) - The dollar rose broadly on Wednesday, building on gains made after robust U.S. retail data as more investors adopted the view that the Federal Reserve may be done with cutting interest rates, at least for now.

Sterling slumped to a near three-month low against the dollar after the Bank of England in its quarterly inflation report said that UK prices would shoot up this year, which many believe may delay interest rate cuts. Click on [ID:nBOE001421]

Inflation pressures remained a main theme in the market, and investors awaited the April U.S. consumer price index at 1230 GMT to glean more insight into whether the Fed will take a breather from aggressive rate cuts while it gauges the impact of past cuts on the broader economy.

U.S. interest rate futures showed the market has begun to price in the possibility that the Fed may even raise borrowing costs at the end of the year <FEDWATCH>, pushing Treasury yields higher and boosting the appeal of U.S. debt.

"An increase in U.S. bond yields reflects two things: a market perception that the Fed is on hold for now and the feeling that previous rate reductions together with current fiscal stimulus ... will help the U.S. economy," said Neil MacKinnon, chief economist at London-based hedge fund ECU Group.

"Both factors will help support the dollar."

The 10-year Treasury yield jumped near 4 percent, its highest since the start of the year <US10YT=RR>.

The dollar was also bolstered after data on Tuesday showed U.S. retail sales, excluding those in the hard-pressed auto sector, rose 0.5 percent in April, more than double economists' forecasts, and suggesting that consumer demand was improving.

By 1054 GMT, the dollar was up 0.4 percent at 105.18 yen <JPY=>, edging closer to a two-month high of 105.69 yen touched at the start of the month.

The euro fell 0.2 percent to session lows around $1.5425 <EUR=>, with traders citing strong dollar buying versus Asian currencies as a factor dragging the single currency down.

The euro is now down nearly 4 percent from record highs hit last month at $1.6018, according to Reuters data.

Against a basket of six major currencies, the dollar was up 0.2 percent at 73.466 <.DXY>.

Sterling stumbled to $1.9366 <GBP=>, its weakest since late February and approaching its lowest level of the year around $1.9335.

The UK currency was pressured on concerns that ongoing signs that British inflation continues to heat up will have a negative impact on the broader economy, while keeping the central bank wary of cutting rates, which often promotes growth.

BoE Governor Mervyn King on Wednesday said that he likely would soon be forced to write several letters to the government to explain why inflation was more than a point above the central bank's 2 percent target -- as required by the BoE's remit.

The BoE has cut rates by 75 basis points since December, to 5 percent, and some in the market have cast doubt on whether a cut in June will be possible given a surge in consumer prices.

FED TALK

The greenback, which has rallied on speculation the Fed is done with cutting borrowing costs after slashing by 325 basis points since September, also garnered support from Fed comments emphasising inflation concerns.

Cleveland Fed President Sandra Pianalto called inflation "a key risk", while Dallas Fed President Richard Fisher said it was unclear whether a slowing U.S. economy would be enough to alleviate cost pressures. [ID:nN13441127]

"From the comments we've seen from most of the Fed officials, it feels like they want to indicate that we're at or very close to the bottom of where Fed funds need to go," Calyon currency strategist Daragh Maher said.

Economists in a Reuters survey expect a median 0.3 percent gain in the CPI and an annual rise of 2.4 percent in core CPI excluding food and energy items. (Additional reporting by Veronica Brown; editing by Stephen Nisbet) ((naomi.tajitsu@reuters.com; Tel: +44207 542 5830, Reuters Messaging: naomi.tajitsu.reuters.com@reuters.net))

Keywords: MARKETS FOREX

FOREX-Dollar firms as inflation moves into focus

Reuters: [2008-05-14 10:52:00]

(Changes dateline, byline, adds quotes, updates prices)

By Veronica Brown

LONDON, May 14 (Reuters) - The dollar rose broadly on Wednesday, building on gains made after robust U.S. retail data, with attention turning to inflation figures that could heighten chances of a pause in the Federal Reserve's rate cut campaign.

Inflation is the major focus on both sides of the Atlantic, as the Bank of England releases its quarterly inflation report at 0930 GMT before the U.S. consumer price index at 1230 GMT.

The dollar was bolstered after data on Tuesday showed retail sales, excluding the hard-pressed auto sector, rose 0.5 percent in April, more than double economists' forecasts.

The greenback, which has rallied on speculation the Fed is done with cutting borrowing costs after slashing by 325 basis points since September, also garnered support from Fed comments emphasising inflation concerns.

Cleveland Fed President Sandra Pianalto said core inflation measures were rising faster than she liked and called inflation "a key risk".

Dallas Fed President Richard Fisher said it was unclear whether a slowing U.S. economy would be enough to alleviate cost pressures. [ID:nN13441127]

Economists in a Reuters survey expect a median 0.3 percent gain in the CPI and an annual rise of 2.4 percent in core CPI excluding food and energy items.

"From the comments we've seen from most of the Fed officials, it feels like they want to indicate that we're at or very close to the bottom of where Fed funds need to go," Caylon currency strategist Darah Maher said.

"The inflation number today, if it comes in around 2.4 percent then its still above the Fed's comfort zone. So if they are more confident that growth will recover and financial armageddon will be side stepped, well then I guess you have to say real rates based on core are negative and that's already pretty accommodative," he added.

The dollar was up 0.3 percent on the day at 105.15 yen <JPY=>, while the euro fell more than a quarter percent to session lows around 1.5403 <EUR=>, with traders citing strong dollar buying versus Asian currencies as a factor dragging the single currency down.

The euro is now down some 3.7 percent from record highs hit last month at $1.6018, according to Reuters data. Against a basket of six major currencies, the dollar was up 0.3 percent at 73.532 <.DXY>.

UK INFLATION

Currency markets were little moved by Fed Chairman Ben Bernanke's comments on Tuesday that the central bank's liquidity measures had helped relieve strain in financial markets, but that the recovery process remained incomplete.

Sterling was mired at near-three month lows versus the dollar <GBP=> as investors awaited the Bank of England's key quarterly inflation report for any signs price pressures will cap the pace of growth-boosting interest rate cuts.

The BoE is trapped between rising inflation sparked by sky-high food and energy costs and a sharply slowing economy, as evidenced by a recent run of poor economic data.

For sterling the current worry is that not cutting rates fast enough may seriously hamper growth, so a surprisingly big jump in April consumer prices on Tuesday was seen as a negative.

The BoE has cut rates by 75 basis points since December, taking them to 5 percent.

"The central bank will have to be careful before sending an overly hawkish message to the markets. Recent data suggests downside risks to growth in the UK have intensified," UBS strategists said in a note to clients.

Most analysts polled by Reuters predict UK rates will fall to 4.75 percent in June, despite stubbornly high inflation [BOE/INT]. (Reporting by Veronica Brown; Editing by Chris Pizzey) ((RM:veronica.brown.reuters.com@reuters.net; Tel: +44 207 542 6745))

Keywords: MARKETS FOREX

FOREX-Dollar up on Fed view, US sales data awaited

Reuters: [2008-05-13 13:06:00]

(Changes byline, adds quotes, updates prices)

By Simon Falush

LONDON, May 13 (Reuters) - The dollar rose broadly on Tuesday as some investors speculated that the Federal Reserve may be nearing the end of its rate cutting cycle, while a fall in stock prices cranked up risk aversion, supporting the yen.

Traders awaited U.S. retail sales figures due at 1230 GMT for more clues about the Fed's policy outlook.

Some believe the U.S. central bank will pause its easing campaign after slashing borrowing costs by 325 basis points since September to 2 percent.

The data are expected to show a dip of 0.1 percent in retail sales in April due to a big drop in auto sales. Excluding autos, sales are forecast to rise 0.2 percent, slightly more than in March.

Doubts remain however on whether the U.S. government and Federal Reserve have done enough to get the U.S. economy back on track. The sales data due could reflect that, analysts said.

"I'm still looking for softer U.S. economic data, I'm waiting for the numbers to catch up with people's view that there is a recession in the U.S. in the first half of the year," said Niels Christensen, currency strategist at Nordea in Copenhagen.

The euro was down 0.5 percent at $1.5461 <EUR=> by 1043 GMT. Against a basket of currencies the dollar was up 0.4 percent at 73.233 <.DXY>.

Sentiment on Europe was dented by a rights issue at Credit Agricole due to further writedowns, high British inflation and further signs of weakness in the British housing market, which helped to drag stocks half a percent lower <.FTEU3>.

"Data out of the UK was very negative ... and equities have turned into negative territory and that's why yen crosses are down," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Franfurt.

The yen tends to benefit and high yielding currencies fall when risk aversion increases as investors exit carry trades where they use the low yielding currency to fund purchases of higher yielding assets.

The euro was down 0.6 percent against the yen at 160.40 <EURJPY=> while the dollar was little changed at 103.75 yen.

UK PRICES SURGE

Data showing a fall in British housing and retail sales underlined economic weakness spilling over from the credit crunch amid rising inflationary pressures with CPI growing at its fastest rate since May 2001. Click on [nL13567339]

The grim figures had preceded a report on British inflation on Tuesday and analysts said that while surging prices may prompt the Bank of England to delay cutting rates, economic weakness stemming from a housing downturn would prompt more rate cuts in the future, pushing sterling lower.

The pound fell 0.5 percent versus the dollar to $1.9470 <GBP=> and high yielding currencies like the Australian <AUD=> and New Zealand <NZD=> dollars were both down more than half a percent against the U.S. currency.

Several Federal Reserve officials, including Chairman Ben Bernanke, will also speak on credit markets and the economic outlook later in the day and could flesh out thinking on the prospect of a pause in cutting rates.

"The range of expectations (for U.S. retail sales) is pretty wide as people weren't quite sure what to do with (the impact of an early) Easter, so they may be bracing themselves for a bit of a surprise on which way it's going to go," ING head of currency strategy Chris Turner said.

"You have to look at things in terms of what the market is pricing in for the June rate meeting which is pretty much nothing ... so on balance we think the risk might be skewed towards a slightly weaker dollar," he added.

(Additional reporting by Veronica Brown; Editing by Gerrard Raven) ((simon.falush@reuters.com. +44 20 7542 7681) Reuters Messaging: simon.falush.reuters.com@reuters.net))

Keywords: MARKETS FOREX

Currency bid prices at 1025 GMT.  All data taken from Reuters 
with percent change calculated from the daily U.S. 
close at 2130 GMT. 
 
                       Last     US Close  % Chg   YTD %   2007 
                                12 May.                   Close 
                       ----------------------------------------- 
 Euro/dlr   <EUR=>     1.5467   1.5546   -0.51    +6.02   1.4589 
 Dlr/yen    <JPY=>     103.62   103.76   -0.13    -6.93   111.33 
 Euro/yen   <EURJPY=>  160.28   161.30   -0.63    -1.38   162.53 
 Dlr/swiss  <CHF=>     1.0473   1.0435   +0.36    -7.60   1.1335 
 Stg/dlr    <GBP=>     1.9467   1.9575   -0.55    -1.91   1.9847 
 Dlr/cad    <CAD=>     1.0078   1.0049   +0.29    +1.14   0.9964 
 Aus/dlr    <AUD=>     0.9416   0.9473   -0.60    +7.53   0.8757 
 NZD/Dlr    <NZD=>     0.7668   0.7708   -0.52    +0.03   0.7666 
 Euro/swiss <EURCHF=>  1.6204   1.6228   -0.15    -2.03   1.6539 
 Euro/stg   <EURGBP=>  0.7942   0.7942   +0.00    +8.07   0.7349 
 Euro/sek   <EURSEK=>  9.2823   9.2840   -0.02    -1.57   9.4304 
 Dlr/Nok    <NOK=>     5.0729   5.0485   +0.48    -6.66   5.4347 
  
 Latest forex developments <FXNEWS>    
 All forex news ... [FRX]  Debt...[DBT] Indicators...[ECI] 
 Currency reports.. [USD/] [DLR/BLOC] 
                    [GBP/] [AUD/] [NZD/] [CAD/] 
 All spots  <FX=> 
 Tokyo spots <AFX=> 
 Europe spots <EFX=> 
 Volatilities <FXVOL> 
 Tokyo Forex market info from BOJ <TKYFX> 
 World central bank news [CEN] 
 Economic Forecasts...<ECON>   Official rates...[INT/RATE] 
 Forex Diary.......[MI/DIARY]   Top events........[M/DIARY] 
 Diaries...........[DIARY] Diaries Index........[IND/DIARY] 
 Press Digests....[PRESS]  Polls on G7 economies..[SURVEY/] 
 
  

FOREX-Dlr firm before US retail data, pound slips

Reuters: [2008-05-13 10:26:00]

(Changes dateline, byline, adds quotes, updates prices)

By Veronica Brown

LONDON, May 13 (Reuters) - The dollar firmed against a basket of currencies but gains were contained by the risk that U.S. retail sales data due later on Tuesday may cloud expectations for a pause in the U.S. rate cut cycle.

Sterling lost the most ground against the U.S. currency as domestic factors came in to play, with housing and retail sales data weighing on sentiment.

British consumer price figures due on Tuesday are expected to reflect rising inflationary pressures, deepening the Bank of England's policy dilemma as it struggles to balance slowing growth with rising inflation.

The U.S. central bank, having slashed borrowing costs by 325 basis points since September to 2 percent, is expected to pause the easing campaign aimed at limiting damage caused to growth by the ongoing credit crunch.

Nagging doubts remain however on whether enough has been done by the U.S. government and Federal Reserve to get the ailing U.S. economy back on track. Retail sales data due at 1230 GMT could well reflect that, analysts said.

A slew of Federal Reserve officials, including Fed Chairman Ben Bernanke, will also speak on credit markets and the economic outlook later in the day and could flesh out thinking on the prospect of a pause in cutting rates.

"The range of expectations (for U.S. retail sales) is pretty wide as people weren't quite sure what to do with (the impact of an early) Easter, so they may be bracing themselves for a bit of a surprise on which way it's going to go," ING head of currency strategy Chris Turner said.

"You have to look at things in terms of what the market is pricing in for the June rate meeting which is pretty much nothing ... so on balance we think the risk might be skewed towards a slightly weaker dollar," he added.

U.S. retail sales are expected to show a dip of 0.1 percent in April due to a big drop in auto sales. Excluding autos, sales are forecast to rise 0.2 percent, slightly higher than in March.

The dollar was up 0.1 percent on the day against a basket of six major currencies at 73.010 <.DXY>, while the euro fell almost 0.2 percent to $1.5520 <EUR=>, with the single European currency now down roughly 3 percent from last month's record high struck at $1.6018.

Traders said the dollar was also benefitting from an improved risk environment as stock markets rallied in Europe <.FTEU3>, taking a lead from a strong Nikkei close in Tokyo <.NN25>.

STERLING WOES

The dollar dipped 0.2 percent to 103.54 yen <JPY=>.

Sterling was the biggest loser versus the greenback, falling almost 0.5 percent to $1.9486 and nearing the previous session's 2-1/2 month lows <GBP=>, while the euro rose to a three-week high at 79.68 pence <EURGBP=>.

Data showing a fall in UK housing and retail sales underlined economic weakness spilling over from the credit crunch amid rising inflationary pressures. The grim figures precede a report on UK inflation on Tuesday and analysts said that while an expected price climb may stall the Bank of England's interest-rate cutting cycle, economic weakness stemming from a housing downturn would prompt more rate cuts in the future, pushing sterling lower.

"Rate cuts are a matter of time ... The bank realises that economic activity and demand are slowing and could cuts rates right now but of course they're worried about inflation," said Paul Robson, currency strategist at RBS Global Banking. (Additional reporting by Naomi Tajitsu; Editing by Ruth Pitchford)

((RM:veronica.brown.reuters.com@reuters.net; Tel: +44 207 542 6745))

Keywords: MARKETS FOREX

FOREX-Dlr up on slightly better risk demand, Fed view

Reuters: [2008-05-12 13:45:00]

(Changes byline, adds quotes, updates prices)

By Veronica Brown

LONDON, May 12 (Reuters) - The dollar rose a full percent against the yen on Monday and approached a two-month high versus a basket of currencies, boosted by a slight rise in risk demand and growing speculation that U.S. interest cuts may be ending.

Weak economic data suggesting that Australia and New Zealand may be heading for rate cuts initially pushed down the high yielding currencies of both countries, as lower borrowing costs would trim their rate advantage against other currencies.

Stock markets and sterling were cheered as results from European banking heavyweight HSBC <HSBA.L> came in stronger than expected [nL12579110].

Market liquidity was thin however, with many European markets closed for holidays, and analysts said that this had sharpened currency moves.

News that a major earthquake had shaken parts of China had limited initial impact on the currency market as investors awaited more news of damage. Click on [nSP239734]

The dollar has rallied in recent weeks on speculation that the Federal Reserve may be nearing the end of its rate-cutting cycle, having slashed them by a total of 3.25 percentage points since September to 2 percent.

Analysts said that while risk appetite had picked up with stock markets rising, many investors stayed cautious about the health of the global economy and financial systems.

"I think sentiment is slowly moving in terms of a slowdown in the U.S. spreading to the rest of the world. Maybe some participants are thinking that they have priced in a bit too much weakness in the U.S.," Citigroup currency strategist David Pais said.

"Our own sense is that the slowdown in the U.S. is going to be a lot worse because it's very much the epicentre of the financial market problems and the housing market problems," he added.

The euro was down 0.2 percent on the day at $1.5449 <EUR=> having earlier dipped below the $1.54 mark to hover within range of a two-month low of $1.5284 hit last week.

Against a basket of currencies, the dollar was up 0.1 percent to 73.219 <.DXY>, pushing towards 73.895 touched last week for the first time since early March. Sterling bucked the dollar's trend to rise 0.3 percent on the day to $1.9586.

The dollar rose more than 1 percent to near a session high of 103.95 yen <JPY=>, with much of the gain having been nade before news of China's earthquake.

Market participants offered limited initial reaction to an announcement by the People's Bank of China that it raised its reserve requirement ratio by 0.5 percentage point, to take effect on May 20. Click on [nBJB000090]

FED PAUSE EYED

After the dollar's tumble in the wake of aggressive Federal Reserve interest rate cuts and efforts to pump cash into gummed-up money markets, the Fed is now seen on hold and expectations are mounting for other central banks to cut rates.

Analysts said that a series of speeches by Fed officials due this week would be scrutinised for more clues into whether the end for aggressive rate cuts was near.

"If they come out hawkish it could be a sign that Fed cuts are down for the short term ... and this would support the dollar," UBS currency strategist Geoffrey Yu said.

At the same time, mounting signs that European growth is stumbling has stirred speculation the European Central Bank could edge towards trimming rates.

The high-yielding Australian <AUD=> and New Zealand <NZD=> dollars were initially hit, with the Kiwi nearing a four-month low hit earlier in the day before wiping the losses.

Antipodean currencies suffered after a survey showed business confidence in Australia hitting the lowest since September 2001 and housing finance falling sharply, while a report in New Zealand showed housing price gains slowing for an eighth straight month and projected to fall.

In the case of New Zealand, the country's central bank is now seen slashing rates by up to 125 basis points over the next year and thereby eroding the allure of the New Zealand dollar's 8.25 percent rate -- the highest among industrialised economies.

RBC strategists said in a note to clients they had added to their existing short NZD/USD position at $0.7650 and continued to target a move to $0.6900 in coming months.

"Near term, NZD faces further downside risks," they added.

But while analysts said there were many reasons for a fall in the kiwi, the case for a slide in the Australian dollar was not so clear-cut as the country's labour market is robust and high commodity prices provide an economic boon.

(Additional reporting by Naomi Tajitsu)

(Editing by Ron Askew)

((RM:veronica.brown.reuters.com@reuters.net; Tel: +44 207 542 6745))