Tuesday November 18, 06:20 PM
Dollar slips on weak data
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LONDON (AFP) - The dollar slipped on Tuesday against the euro, erasing earlier gains due to weak US pricing data, but the chairman of the US Federal Reserve insisted the US remained the premier world currency.
In late London trade, the euro rose to 1.2687 dollars from 1.2645 dollars late in New York on Monday.
The dollar firmed to 97.34 yen from 96.35.
In testimony to Congress, Fed chairman Ben Bernanke insisted that the dollar's status as the "premier" international currency had been reinforced by the global credit crisis.
He said the dollar had strengthened during the crisis "because there's been a lot of interest in the safe haven and the liquidity of dollar markets."
A key indicator of price pressures in the manufacturing pipeline -- the US Labor Department's producer price index -- plunged a record 2.8 percent in October in a further sign of economic woes, pushing down the dollar on Tuesday.
"In the coming days the fundamental data should ... remain the dominant market driver," Commerzbank (Xetra: 803200 - news) analysts said in a note.
"Not the relative performance of the economic regions, mind you, but the world economy as a whole," they added.
"Good economic data -- whether coming from the US or Europe -- is good for the euro, while adverse data should be negative for the single currency."
Analyst Paul Ashworth at Capital Economics said: "The 2.8 percent drop in US producer prices in October, the biggest monthly decline in more than 60 years, illustrates that deflation is now the primary threat."
Deflation is a persistent fall in overall prices that can be just as difficult to fix as inflation.
US Treasury Secretary Henry Paulson testified earlier on Tuesday, warning lawmakers that a 700 billion dollar bank bailout package was "not a panacea for all our economic difficulties," reiterating opposition to using the funds for the auto industry.
The testimonies were keenly awaited after a summit of 20 leading rich and emerging countries failed to come out with any concrete measures to fight the looming global recession.
Also due in Congress on Tuesday were the heads of the Big Three automakers -- General Motors (NYSE: GM - news) , Ford and Chrysler -- who were to plead their case for an extra government aid package later Tuesday before a Senate panel.
Meanwhile the president of the European Central Bank, Jean-Claude Trichet, was also due to speak in London on Tuesday.
Analyst Daragh Maher of Calyon bank raised the prospect that "the UK's dovishness (on interest rates) rubs off on him," which could encourage a further lowering of eurozone rates that would be expected to favour the dollar.
Elsewhere on Tuesday, the British pound traded mixed on news that 12-month inflation fell more sharply than expected, to 4.5 percent in October from a 16-year high of 5.2 percent in September, as oil prices dropped.
The euro changed hands at 1.2687 dollars against 1.2645 dollars late on Monday, at 123.03 yen (121.87), 0.8430 pounds (0.8440) and 1.5175 Swiss francs (1.5145).
The dollar stood at 97.34 yen (96.35) and 1.2007 Swiss francs (1.1977).
The pound was at 1.4993 dollars (1.4982).
On the London Bullion Market, the price of gold advanced to 738 dollars an ounce from 734 dollars late on Monday.
-- Dow Jones Newswires contributed to this report
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