Currencies

Thursday May 15, 02:00 AM
Forex - U.S. dollar higher in Sydney on improving economic view

SYDNEY (Thomson Financial) - The U.S. dollar was trading higher against major currencies at midmorning in Sydney on Thursday, supported by a growing view that recent moves to stimulate the U.S. economy have worked.

The more optimistic outlook has lifted U.S. Treasury yields despite April consumer price index data showing core inflation is benign and providing more reason for the Federal Reserve to sit on the sidelines for the time being.

At 10:10 a.m. (0010 GMT) the dollar was trading at 105.23 yen from 105.05 in late trade in New York on Wednesday, while the euro was down at $1.5461 from $1.5471 late in New York.

'The U.S. dollar continues to maintain a bid tone due to Treasury yields remaining at elevated levels despite the lower-than-expected U.S. CPI (NYSE: CPY - news) ,' said John Noonan, a senior foreign exchange analyst at Thomson Reuters IFR Markets.

The April CPI data showed overall prices rose 0.2 percent, while core inflation, which strips out volatile food and energy prices, rose just 0.1 percent in April. Each was a tick lower than forecasts of economists polled by Thomson IFR Markets.

Noonan said there is a growing belief among investors that the worst is over for the U.S. economy and the Fed's job in providing stimulus is done.

'While this view holds and builds the dollar is likely to remain underpinned,' he said.

The dollar is also gaining against the yen though meeting resistance at the 105.50 yen level due to Japanese sell orders.

Among the other majors, Noonan said the pound remains under downward pressure as the outlook for the U.K. economy is bleak due to slowing growth yet rising inflation, giving rise to concerns of stagflation.

'Stagflation is not currency-friendly and the U.K. economy appears to be flirting with that dreaded malaise,' he said.

The pound fell sharply overnight after the Bank of England (BoE) Quarterly Inflation Report highlighted persistent inflation and sharply falling growth. The central bank's governor Mervyn King warned that the U.K. may well sink into a technical recession for the first time since the early 1990s even as inflation rises further above target.

Noonan said the outlook for the U.K. economy is bleak and the inflationary pressures will keep the BoE's hands tied.

Meanwhile, improving sentiment towards the U.S. economy is putting the Australian dollar under pressure. U.S. dollar strength has seen the unwinding of long positions in the high-yielding currency.

Analysts said the Australian dollar is not benefitting from a rise in risk appetite and this may have been due to the market already being very long in the currency.

'The Australian economy is cooling off and while the U.S. dollar remains elevated, the $0.9500 level for the Australian dollar should be very toppish,' Noonan said.

Sydney 10:10 a.m. (0010 GMT)

U.S. dollar

yen 105.23

Swiss franc 1.0551

Euro

U.S. dollar 1.5461

yen 162.660

Swiss franc 1.6313

pound 0.7945

Pound

U.S. dollar 1.9459

yen 204.815