02.06.2008 11:21

FOREX: weekly review

The dollar was headed for a second straight monthly advance against the euro and yen as signs of improving economic growth boosted investor confidence in U.S. assets.
The U.S. currency also traded close to a three-month high versus the yen as traders bet the Federal Reserve will raise interest rates later this year. The dollar pared its monthly gain against the euro Friday as private reports showed a measure of U.S. business activity shrank in May, while manufacturing in the Milwaukee area was the weakest in five years.
``The idea that the Fed will continue to cut rates has been completely put to bed and the market is now flirting with the idea of a rate hike,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``That has given the dollar a boost.''
Futures on the Chicago Board of Trade show a 29 percent chance the Fed will raise its target rate by a quarter- percentage point to 2.25 percent on Sept. 16, up from 19 percent a month ago.
The dollar touched $1.5461 per euro, the strongest level since May 16, before weakening to $1.5550, from $1.5519 Thursday. It has risen 0.4 percent this month. The dollar traded at 105.51 yen, from 105.50 yesterday, when it reached 105.87, the highest since Feb. 28. It has gained 1.5 percent this month against the yen. The euro rose to 164.10 yen, from 163.71 yen Thursday.
The dollar got a brief boost after a government report showed personal income was stronger in April than economists expected. Incomes grew 0.2 percent, bolstered in part by the government's tax rebates, after a 0.4 percent increase the prior month. The median forecast was for a drop to 0.1 percent.

The U.S. economy expanded at a 0.9 percent annual pace last quarter, faster than the Commerce Department's April 30 estimate of 0.6 percent, the government said yesterday. U.S. durable goods orders excluding transportation equipment rose 2.5 percent in April. The median forecast in a Bloomberg survey was for a 0.5 percent drop.
``The data has been dollar-positive because they'll allow the Fed to keep rates where they are,'' said Greg Anderson, a foreign exchange strategist at ABN Amro Bank NV in Chicago. ``They show the opposite of stagflation.''
The National Association of Purchasing Management-Chicago said today its business index rose to 49.1 this month, higher than forecast, from 48.3 in April. Figures below 50 signal contraction. The NAPM-Milwaukee's monthly index of regional manufacturing fell to 45, from 48 in April.
The euro fell earlier after retail sales in Germany, Europe's largest economy, unexpectedly dropped in April.
Sales adjusted for inflation and seasonal swings fell 1.7 percent from March, when they dropped 2.2 percent, the Federal Statistics Office in Wiesbaden said. Economists forecast a gain of 0.6 percent.
``Consumption in Germany is cooling down due to hefty oil prices,'' said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany's second-largest bank. ``In such a situation, the Fed could raise rates faster than'' the European Central Bank. The euro may fall to $1.52 by June 30, he said.

Britain's pound will fall to 81 pence against the euro in coming months as a weakening economy prompts investors to resume bets the Bank of England will add to interest rate cuts this year, according to a Dresdner Kleinwort note yesterday. U.K. consumer confidence dropped in May to the lowest level since Margaret Thatcher was ousted from office in 1990, as people became more pessimistic that the economy will slip into a recession, GfK NOP Ltd. said Friday.