Dollar lifted by capital flows data
November 18, 2009
New York - The dollar found firmer footing on Tuesday, rising against its main rivals after data showed strong demand for US Treasury bonds and the European Central Bank chief called for a strong greenback.
At 22h00 GMT, the euro was changing hands at 1.4873 dollars compared to 1.4972 dollars late on Monday in New York.
The US unit rose to 89.25 yen from 89.05 yen.
Market action came after ECB chief Jean-Claude Trichet hailed US commitments to a strong dollar, telling the French newspaper Le Monde that such a position benefited the entire international community.
"The strength of the dollar ... is not only in the interests of the United States but the entire international community as well," he said in an interview.
Trichet's remarks followed statements from US Federal Reserve chief Ben Bernanke, who stressed the importance of strengthening the dollar.
Although Bernanke's remarks offered little support on Monday, the dollar gained momentum in Asia afterwards.
Bernanke's remarks "may have been an attempt to check the recent surge in global asset prices with a hard dose of economic reality," said Fred Dickson, market strategist at DA Davidson & Company.
"It appears to have worked, at least overnight. Time will tell if global investors change their outlook for the dollar, commodities and global equities. Normally the half-life of the impact of a speech from a Fed chairman is about two days."
Meanwhile US Treasury data showed foreign investments in US bonds and other long term investments, including from China, rose beyond expectations.
Net long-term capital flows to the United States climbed to 40.7 billion dollars in September from a revised 34.2 billion dollars the prior month, according to the Treasury International Capital Data (TIC) monthly report.
The data eased fears that central banks and other investors were dumping dollars and Treasury securities because of fears of the dollar's stability.
"The renewed demand on behalf of foreign investors was surprising given the continued rally in global equities and improvement in risk appetite," said Michael Woolfolk at Bank of New York Mellon.
"If this proves an enduring trend, it will provide the foundation for a strong dollar rally next year as the Fed begins raising interest rates".
US economic data offered mixed signals on the economy and thus did little to move the currency markets.
One report showed overall US industrial production rose 0.1 percent in October, with a small decline in factory output offset by a rise in utility activity.
A separate report indicated US producer prices rose 0.3 percent in October, highlighting tame inflation at the wholesale level.
Excluding food and energy, the so-called core PPI was down 0.6 percent.
Over 12 months, wholesale prices have fallen 1.9 percent overall, with the core index showing a scant 0.7 percent rise.
The trend of flat or declining prices is a mixed blessing for the economy. It allows the Federal Reserve to keep rates low to help lift the economy out of its torpor, but also suggests a potentially crippling deflationary spiral that can harm recovery efforts.
"Inflationary pressures remain muted and manufacturing activity is beginning to slow," said Kathy Lien at Global Forex Trading.
"Ultimately these reports give the Fed more reasons to keep easy monetary policy in place for as long as they can and along those lines to keep the dollar from rising rapidly so that it can help to stimulate the US economy."
In late New York trade, the dollar firmed to 1.0157 Swiss francs from 1.0072 Monday.
The pound was at 1.6808 dollars after 1.6818. - AFP
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