Dollar lifted by US data, markets brace for big week

NEW YORK, Jan 26 (Reuters) - The dollar advanced broadly on Friday, as generally robust data from the U.S. housing and manufacturing sectors provided further evidence the economy is more resilient than many initially thought. That should reinforce the view the Federal Reserve may hold interest rates steady at 5.25 percent this year, and not cut them as previously expected. "The data was pretty good overall. Durables surprised to the upside and December home sales may have been weather-related, but this is giving us some hope that the housing market correction will not be much deeper," said Carl Forcheski, vice president of corporate foreign exchange at Societe Generale in New York. The dollar rose after a government report showed that while new-home sales posted their biggest drop in 16 years in 2006, sales picked up in December. That followed a report on new orders for U.S.-made durable goods, which increased by a larger-than-expected 3.1 percent in December. "These have supported the dollar because they have pushed out expectations of a rate cut in the middle of the year which had been universally expected up until a month ago," Forcheski said. Interest rate futures on Friday continued to suggest that the policy-setting Federal Open Market Committee will hold the fed funds rate unchanged at next week's meeting and potentially for the whole of 2007. They also showed a slim chance of a rate hike by June . In late afternoon trading, the euro was down 0.1 percent against the dollar at $1.2918. Against a basket of currencies, the dollar traded to a two-month high at around 85.43 <.DXY>. It last traded at 85.25. Next week, markets are bracing for a slew of U.S. economic data and events led by the FOMC meeting, the non-farm payrolls report, and a key manufacturing survey. That should help determine where the dollar and U.S. interest rates are headed this year.
"The Fed won't shock anyone by leaving rates unchanged ... nor will the accompanying statement, citing improved near-term growth and a continued tightening bias, sentiments that the market has already heard from Fed speakers," said Avery Shenfeld, senior economist at CIBC World Markets in Toronto. "That puts the focus on fresh economic reports, with a flood of data due," he added. The dollar was up 0.3 percent against the yen at 121.54 yen . The euro was up 0.2 percent at 156.99 yen . The yen has already given up nearly all its hefty gains made in the last two days against the dollar when investors rushed to reverse extreme short positions and unwind carry trades. The yen's rally came amid speculation the weak Japanese currency could be discussed at next month's Group of Seven meeting. Any sharp appreciation of the yen could erase profits from carry trades, where investors borrow in low-yielding currencies to buy assets in countries with higher interest rates. But after digesting a barrage of comments from European and Japanese officials, most analysts concluded for now that the Feb. 9-10 summit would not yield a group statement on the yen. Analysts said demand for yen started to wane in Asian trading as soft Japanese inflation figures cast doubt on whether the Bank of Japan will raise rates next month. Japanese core consumer prices rose just 0.1 percent in December from a year earlier, suggesting Japan is struggling to shake off a decade of deflation and adding to speculation the BOJ may keep rates at 0.25 percent at its February meeting. Elsewhere in the market, the dollar rose 0.4 percent against the Swiss franc to 1.2535 francs , while sterling slipped 0.2 percent to $1.9593 .

Dollar surges after Dec jobs growth beats forecasts

NEW YORK, Jan 5 (Reuters) - The dollar rallied on Friday after a surprisingly strong report on U.S. jobs growth in December led investors to scale back expectations for a Federal Reserve interest rates cut in the next six months. The euro plunged to a six-week low against the dollar after the Labor Department said the U.S. economy generated 167,000 new jobs in December, well above market expectations for a rise of 100,000. "It's positive no matter what way you look at it and is definitely bullish for the U.S. dollar," said Dustin Reid, foreign exchange strategist at ABN Amro in Chicago. "The private sector is firing on all cylinders here." Reid said he did not expect the Fed to cut interest rates from the present level of 5.25 percent any time soon, especially since the data also showed the largest rise in average hourly earnings in eight months.
Robust job growth, coupled with upward pressure on hourly wages, will likely keep the Fed concerned enough about inflation to leave its key interest rate on hold for at least several months to come, analysts said.
The euro dropped as low as $1.2981 on electronic trading platform EBS, the lowest since Nov. 24 and down more than 0.6 percent on the day. A break below $1.2980 would likely trigger a wave of automatic sell orders, adding momentum to the euro's decline, traders said. Meanwhile sterling fell as low as $1.9264, the lowest in more than six weeks. In a further sweetener to dollar bulls, the government also revised up its estimates of job growth in October and November, suggesting the labor market is proving more resilient than many economists had thought. "This data will force the market to further defer rate cut expectations well into H2," said Alan Ruskin, chief international strategist at RBS Greenwich Capital, in a note to clients. Implied chances of a cut in the fed funds rate by June fell sharply to 20 percent from 54 percent prior to the jobs data, according to the interest rate futures market.

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