Dollar firms on supportive US data, euro slips

The dollar edged higher on Friday against a basket of currencies on encouraging data on US producer prices and industrial output, while euro ended a good week on a weak note even as the Greek parliament approved a new bailout agreement. Relative calm returned to foreign exchange market after China earlier this week sent ripples through global financial markets by devaluing the yuan. "We have seen a stability in the dollar in the past few days. The data continue to show improvement," Eric Viloria, currency strategist at Wells Fargo Securities in New York.
The dollar index was up 0.2 percent at 96.670, rebounding from a session low of 96.087. It was on track to fall almost 1 percent on the week, its steepest decline in nine weeks. The greenback was weaker against the yen, last down 0.1 percent at 124.26 yen. In July, US producer prices increased for a third straight month, and industrial production rose at its strongest pace in eight months, government data released on Friday showed.
These improved figures were mitigated by a surprise deterioration in US consumer sentiment as measured by University of Michigan in early August. Still Friday's economic readings kept in play bets the Fed will end its near zero interest rate policy by year-end. US interest rate futures suggested traders put a 45 percent chance the Federal Reserve will raise rates at its September 16-17 meeting, up from 39 percent on Thursday, according to CME Group's FedWatch program.
The euro rose earlier Friday as investors unwound euro-funded carry trades in the yuan and other emerging market currencies, which were hit hard by the Chinese devaluation on Tuesday. It was also bolstered by the Greek government's approval of a deal with creditors, which paves the way for disbursement of aid ahead of a debt payment due next week. Its gains faded as the greenback strengthened after the latest US data. The euro was down 0.35 percent at $1.1109, paring its weekly gain to 1.3 percent. It was down 0.5 percent at 138.04 yen, reducing its weekly rise to 1.3 percent.
On Friday, the People's Bank of China set the yuan midpoint at 6.3990 yuan to the dollar, slightly stronger than Thursday. Beijing's moves eased concerns that a cheaper yuan could trigger a "currency war," or a competition among the world's biggest economies to cheapen their own currencies to seek a competitive edge for their exports.