The dollar was underpinned on Monday by upbeat US economic data and expectations Federal Reserve Chairman Alan Greenspan would signal more US rate rises, but volume was thin due to a Japanese holiday. On Friday, better-than-expected reports for New York area manufacturing, national industrial production and consumer sentiment confirmed the view that the economy was on a solid footing, while producer price inflation proved tamer than analysts had expected.
That pushed up the dollar and the US currency generally held on to the gains on Monday.
It was quoted around $1.2050/55 per euro, barely changed from Friday's closing New York level of around $1.2043, and it was at 112.19/22 yen versus 112.23.
Sterling traded around $1.7540, just barely higher than Friday's 1.7527.
Greenspan is due to deliver his semi-annual testimony on the economy to Congress on Wednesday and Thursday. Economists expect he will sound bullish about the economy and also suggest the Fed should extend its year-long tightening cycle.
The US policy-setting Federal Open Market Committee is also due to release the minutes of its June meeting on Thursday.
Jan Lambregts, head of Asia-Pacific research at Rabobank, said both events would highlight the buoyancy in the economy and benign inflationary expectations.
"This is a very nice situation for the Fed to talk about and they will do so. The gist of the story will be that the market can look forward to more measured rate hikes," Lambregts said.
While such likely policy-tightening had been priced into the currency markets, the dollar would continue to benefit modestly, he said.
Last week was volatile for the major currencies as the dollar initially ceded ground, weighed down by the heavy long positions in the currency, and then rallied on the back of economic data.
It gained half a percent against the euro last week and ended flat against the yen after hitting a 10-day low around 110.72 on Tuesday.
US Treasury International Capital (TIC) flow data are due on Monday and should show if capital flows into the United States in May were sufficient to cover the trade deficit.
TIC data for April showed a net $47.4 billion was invested from abroad in US securities, far short of the month's $57 billion trade deficit. The flow for March also fell short of the trade deficit.
Lambregts said markets were expecting an inflow of $60 billion in May, above that month's trade deficit.
"But the market is not really focusing on the US deficits right now. Unless the figure is a real outlier, markets will not be surprised," he said.
Japanese markets were shut for the Oceans Day holiday.
The yen has been stuck in a tight range around 112 per dollar since late last week, supported by renewed speculation that China could revalue the yuan soon and the Bank of Japan's view that weakness in the economy was receding.
The Financial Times reported on Friday the US administration has told key senators that it expects China to revalue the yuan in August.
On Monday, a Chinese government economist said China should widen the yuan's trading band by 3 percent to help reduce the country's large trade surplus.
Comments
Comments are closed.