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Dollar firm in late Europe

as bond markets rally

LONDON: The dollar was firm in late European trade against the mark and yen, edging briefly above key resistance at 1.5050 marks as the U.S. bond market jumped one point amid dwindling inflation fears.

The dollar showed little initial reaction to U.S. consumer price and retail sales data broadly in line with expectations. But a weaker-than-expected Michigan consumer sentiment survey index sent bond markets higher.

"The dollar seems to want to take the lead from bonds when they're bid, but not when they're offered," said Alan Collins, head of technical analysis at Merita Bank in London.

Bond markets rallied on the back of the 90.8 University of Michigan preliminary index for April, below analysts' expectations and compared with a final March index of 93.7.

The dollar shrugged off earlier U.S. inflation data. March consumer prices rose 0.4 percent with ex-food and energy prices up 0.3 percent. Economists in a Reuters survey forecast overall CPI to rise 0.3 percent and the core rate to rise 0.3 percent.

U.S. March retail sales registered just a 0.1 percent gain against expectations of a 0.3 percent rise. But analysts were surprised at February's figure which was revised to a 1.9 percent rise from up 0.8 percent in the initial report.

The data dented the view of some that the cycle of easing Federal Reserve interest rates had ended amid recent strong U.S. economic data, which fuelled the dollar rally this week.

The dollar was trading at 1.5041/46 at 1501 GMT compared with 1.5006/11 in late Thursday trade. In mid-afternoon trade, the dollar briefly cleared key resistance at 1.5050 marks but could not repeat the overnight peak to 1.5070 marks.

"There are a lot of sellers in Europe above 1.5050, but a break through here today could set us up for 1.51 marks next week," set a German bank dealer. "Sentiment is still pretty bullish, there isn't much danger of a break below 1.50 soon." The market was now looking to next Thursday's Bundesbank council meeting for a cut in German interest rates.

"The dollar still has a pretty bullish outlook and we think there is a good chance Buba will ease interest rates as soon as next week," said Eric Fishwick, senior analyst at IBJ International.

Bundesbank president Hans Tietmeyer has kept alive the rate cut debate with comments throughout the week that the central bank is examining the scope for further easing. Today he told journalists in Zurich that the correction of the dollar could continue.

The European Union finance ministers' weekend meeting in Verona kicked off today. It is billed as an informal meeting, but the market will be watching the outcome for any indication of European monetary union progress.

Another focus of attention is the G10 central bankers monthly meeting on Monday at the Bank for International Settlements in Basle.

Against the yen, the dollar remained firm but the overnight hike to 26-month highs at 109 yen proved elusive in Europe.

The dollar was trading at 108.59/69 yen against 108.46/51 yen late Thursday.-Reuter