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Dollar gets an edge from supportive data

NEW YORK: The dollar was bolstered at modestly firmer levels against the euro and Japanese yen on Thursday after key US economic data pointed to robust domestic demand with mild inflationary pressures.

Trading activity slowed to a crawl in late US dealing as the market braced for a speech by Federal Reserve Chairman Alan Greenspan due. His comments will be scrutinised for clues of the extent of Fed interest rate hikes expected in coming months.

Early in the US session the dollar rose after the government reported that retail sales rose by a stronger than expected 1.2 percent in December.

The Producer Price Index, an indicator of inflation at the wholesale level, matched expectations with a 0.3 percent rise and the closely-watched core PPI, which strips out volatile food and energy components, advanced 0.1 percent.

"This data is essentially dollar supportive," said Paul Podolsky, currency strategist at FleetBoston. "It shows there's strong demand, especially in comparison to German retail sales. Inflation doesn't look like it's out of control."

On Friday, consumer price data will also be closely watched.

The euro dipped to an intraday low of $1.0237 after the data were released, then pared its losses to close at $1.0252, around half a percent below its Wednesday close in New York.

Clawing higher against the yen, the dollar repeatedly tried to push toward a 106.31 yen seven-week peak amid caution on holding yen before a Jan. 22 Group of Seven rich nations summit, which may yield policy signals on the yen.

But dealers said heavy yen selling interest, including by Japanese exporters, kept knocking the dollar back and it closed at 106.04, up just 0.13 percent on the day.

"We saw straight dollar buying after the numbers this morning," said Vincent Amaru, vice president at Citibank in New York. "The euro immediately traded lower and dollar/yen walked up slowly."

Analysts said Thursday's US data did not alter forecasts that the Fed will raise interest rates at its upcoming meeting in February to cool off the surging economy. But the figures allayed some fears of aggressive rate hikes.

During European trade, Germany's Federal Statistics Office reported retail sales in Europe's largest economy rose 1 percent year-on-year in November and were up 0.5 percent in the first 11 months of 1999.

The figure was below a 1.4 percent average rise forecast by economists, but analysts said the data provided further evidence of accelerating German growth.

The euro has rallied from just above parity to the dollar to current levels since the start of the year amid sentiment European growth will pick up in 2000 and uncertainty over the direction of US asset markets.

Interest rate uncertainty is seen contributing to the uneven performance of US assets, which tends to harm the dollar.

"Provided we can keep these PPI and CPI numbers low, we will continue on our Goldilocks scenario and keep the Fed moving just a quarter point," said Tom Benfer, director of foreign exchange at the Bank of Montreal in New York.

Looking ahead, markets are eyeing next week's G7 meeting to give direction to the yen. Speculation has been rife that the Bank of Japan may face pressure from its G7 partners to ease credit further, and that Tokyo may win endorsement of its desire to curb export-crippling yen strength.

In other trading, the British pound rebounded from its lows after it was knocked down by profit-taking following an expected 25 basis point hike in UK interest rates.-Reuters