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Dollar Up, Profit-Taking Hits Euro
Reuters
Wednesday, January 28, 2004; 10:12 AM
By Manuela Badawy
NEW YORK (Reuters) - The dollar rose half a percent against the euro on Wednesday as investors took profits on gains made in the single currency the previous day, offsetting a weaker-than-expected U.S. durable goods report.
"The euro was weaker on consolidation after a very big gain yesterday," said Sean Callow, currency strategist, IDEAglobal in New York.
Early on Wednesday morning in New York, the euro traded up 0.50 percent against the dollar at $1.2573 , having shed around 1-1/2 cents on Tuesday.
The U.S. Commerce Department said orders for long-lasting goods were flat in December after a revised 2.3 percent fall in November. Analysts expected a solid increase of 2.0 percent.
"The data shows that optimism remains high," said Jes Black, currency strategist at MG Financial Group in New York, but he added that the data on durables, which are a leading indicator, were disappointing, "highlighting the potential weakness in this recovery."
The dollar rose 0.58 percent against the Swiss franc to trade around 1.2477 francs .
Earlier in the trading day, the focus was on the battle between dollar bears and the Bank of Japan but traders were also awaiting the outcome of the U.S. Federal Reserve's monetary policy meeting later for clues as to how long U.S. interest rates would remain low.
In Tokyo trade on Wednesday the dollar jumped nearly one yen to 106.62 , making dealers suspect authorities had taken action, although no confirmation was available.
Hiroshi Watanabe, head of the international bureau at the Finance Ministry, said Japan's past intervention was not excessive and was needed. He also said the Group of Seven nations will seek to avoid misguiding the market about their policy when they issue a statement at their February meeting.
The dollar was trading around 105.58 yen , just above Tuesday's three-year low around 105.45 yen.
Sterling was firmer against the dollar and the euro after Prime Minister Tony Blair narrowly avoided defeat in a parliamentary vote late on Tuesday and a newspaper said on Wednesday Blair had been exonerated in an inquiry into the suicide of a UK weapons expert David Kelly last year.
The Fed's Open Market Committee is due to announce its rate decision at 2:15 p.m. EST (1915 GMT). No change is expected in U.S. rates, currently at a 45-year low of 1.0 percent.
Instead the focus is on what language the Fed will use to characterize the state of the economy. Analysts expect it will say the economy is improving solidly, inflation is low and labor markets improving only modestly, meaning rates will be on hold for a "considerable period," as in its previous assessment.
"The FOMC statement will be a Xerox copy of the economic report of last month. The only thing the market is looking for is a reassessment of the time frame of interest rates," Black said. "But we are going to see a reaffirmation of rates on hold and a continuation in the overall trend, with the bond market remaining strong and the dollar remaining weak."
U.S. new home sales data is to be released at 10:00 a.m. EST (1500 GMT).
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