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Dollar Falls After Tame-Than-Expected CPI
MarketWatch.com, December 15, 2006
NEW YORK (MarketWatch) -- The dollar fell against the euro and the yen early Friday after a government report showed lower-than-expected U.S. retail-level inflation for November.
Consumer prices were unchanged in November, as lower energy and car prices offset increases in costs for homeownership and medical care, the Labor Department said. Core prices -- which exclude volatile food and energy prices -- were also unchanged in November, the lowest core inflation since June 2005. Economists expected 0.2% gains for both headline and core inflation.
"The much more benign CPI has taken the wind out of the dollar's sails," said Brian Dolan, director of research at Forex.com, a division of Gain Capital. "The lower CPI is starting to see thoughts of a [first-quarter] Fed easing being put back on the table."
In early New York trading, the dollar was quoted at 117.57 yen, compared with 117.79 yen late Thursday. The euro changed hands at $1.3151 vs. $1.3144.
The British pound traded at $1.9630, up from $1.9602. The dollar changed hands at 1.2145 Swiss francs, compared with 1.2141 francs.
The euro fetched 154.62 yen, compared with 154.91 yen.
Capital flows to the U.S. climbed back in October as official institutions like central banks snapped up U.S. Treasury bonds and notes, the Treasury Department said Friday. Foreign investors bought a net $62.2 billion in securities, the Treasury said, including short-term securities like Treasury bills. It's up from $57.8 billion in September. The inflows were sufficient to cover the trade deficit of the month, which narrowed by 8.4% to $58.9 billion.
Elsewhere, U.S. industrial production rose by an overall 0.2% in November, as the auto sector showed signs of life after sharp declines in the past two months, the Federal Reserve said Friday.
The increase was greater than expected. Economists surveyed by MarketWatch had expected production would remain flat in November.
The greenback rose on Thursday after the Labor Department reported higher-than-forecast import prices for November and a larger-than-expected drop in initial jobless claims for the latest week. The dollar extended its gains following a stronger-than-expected report on manufacturing activity in the New York area.
Japan's business sentiment
The yen continued to weaken after an as-expected Japanese business sentiment survey failed to boost expectations the Bank of Japan would raise interest rates next week.
The widely watched poll conducted by the Bank of Japan showed the headline diffusion index for measuring large manufacturer's business conditions rose to 25, up one point from the September survey and in line with expectations.
The diffusion index for large nonmanufacturers climbed to 22 points, up from 20 in September, above economists' expectations for no change in the headline figure.
Elsewhere, Federal Reserve Chairman Ben Bernanke called on China to let the yuan rise against the dollar. Bernanke, in a speech to the Chinese Academy of Social Sciences, also gently pressed for reforms in the capital, labor and energy markets to ensure continued economic growth.
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