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Dollar firm, but fails to hold 14-month highs

LONDON: The dollar failed to hold 14-month highs against the mark reached on Wednesday but was still firm on a small rise in U.S. March producer price data Thursday and ahead of U.S. consumer price data on Friday.

The headline producer price figure, released Thursday, rose 0.5 percent in March and was up an annual 2.4 percent. This was marginally higher than analysts' forecasts of a 0.4 percent monthly increase and 2.2 percent year-on-year.

Combined with the recent strong U.S. employment data, today's producer price and Friday's consumer price data could put further pressure on the U.S. bond market which could see yields up to and above 7.0 percent.

"The bond market's rising yields makes the dollar look attractive and it can go further," said Tony Norfield, treasury economist at Dutch bank ABN Amro in London. "As long as the setback in the bond market is not too drastic, then it will be dollar-supportive as people load up on bond yields at 7.0 percent."

By the European midsession, the dollar was approaching technical resistance levels at 1.5050 marks and 108.80-90 yen.

Bronwyn Curtis, economist at Deutsche Morgan Grenfell, said that the fact that PPI data was at the top of the range would probably kick the dollar higher, with the market speculating on possible Fed tightening.

The 1.5050 mark level was still seen as keeping a lid on the dollar in European trade despite its break to a 14-month high of 1.5068 marks in New York on Wednesday.

"European corporates are still selling above the 1.5040-50 level, but this is providing opportunities to buy on dips. Support now looks solid at 1.50," said the Japanese bank dealer.

Expectations of a widening interest rate gap between the U.S. and Germany continued to underpin the dollar. This was helped by Bundesbank President Hans Tietmeyer's comments in the UK's Financial Times today that further German rate cuts were possible.

Tietmeyer also said he expected the mark's correction against the dollar and other currencies would continue.

Against the yen, the dollar set fresh 26-month highs at 108.88 in Europe but faced tough resistance at this level.

The likelihood that Japanese monetary policy would remain stable continued to support the dollar.

The dollar was trading at 108.65 yen at 1202 GMT compared with 108.50 in late Wednesday trade.-Reuter