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Dollar climbs, lifted by upbeat U.S. data
(Updates prices, adds comment, changes byline, dateline; previous LONDON) NEW YORK, Feb 4 (Reuters) - The dollar rose moderately against major currencies on Wednesday, following release of firmer-than-expected U.S. economic data that reinforced expectations of a stronger U.S. recovery this year. A stronger economy implies attractiveness of U.S. assets like stocks, therefore enhancing the allure of holding dollars. But the greenback's gains were tempered by a slight drop in the employment index component of the U.S. Institute for Supply Management (ISM) non-manufacturing survey. The employment index slipped to 53.4 in January from 54 in December. The ISM index rose to 65.7 from 58 in August. Market expectations were for an ISM index of 60. U.S. factory orders for December also showed a positive reading, rising 1.1 percent, after a 0.9 percent drop in November. Durable goods orders for December further expanded by 0.3 percent, compared with market forecasts of a 0.2 percent increase. "The data were essentially good for the U.S. dollar. But we had good numbers from the euro zone earlier, so net-net, there would probably be not too much benefit for the dollar," said Shaun Osborne, chief currency strategist at Scotia Capital in Toronto. "Gains were also tempered by the slightly weaker employment number," he said. By midmorning New York trade, the euro fell 0.1 percent to $1.2515 (EUR=), after gaining 1 percent the previous day. The dollar was trading higher against the Swiss franc at 1.2536 francs (CHF=). The pound, meanwhile, dropped to $1.8285 (GBP=), down around 0.5 percent on the day. Against the yen, the dollar was steady, standing at 105.53 yen (JPY=), and not far off a three-year low around 105.20 yen hit on Tuesday. The positive data also brings with it a new sense that interest rate hikes in the United States might be coming sooner rather than later. Last week, the Federal Reserve unexpectedly changed its policy statement, counseling that it could now be "patient" about raising rates, dropping its pledge that it could wait for a "considerable period." That shift spooked markets into thinking rate hikes would come sooner than previously thought. Analysts say expectations of an interest rate increase should boost the dollar given that dollar is out of favor in currency markets in part because official U.S. rates are lower than rates elsewhere. "Any positive number in the U.S. economy raises the expectations that we are going to see a Fed hike sooner rather than later, and that gives us the basis for dollar optimism," said Carl Weinberg, chief economist at High Frequency Economics in New York. But the upbeat U.S. data was balanced by equally robust numbers out of the euro zone, limiting the dollar's gains. The Reuters Eurozone Business Activity Index rose to 57.3 from 56.6 in December, adding evidence that business activity in the region's services sector picked up speed, although it remained below a three-year high of 57.5 in November. FOCUS STILL ON G7 The market's focus is still on the Group of Seven finance minister's meeting in Florida on Feb. 6-7. Analysts broadly expect G7 ministers not to vary the tenor of their reference to currencies significantly from the wording of a communique released after their meeting in September. "Wording is expected to be very vague, so it won't be a guidance to the market, and what we have to look at is how Asian central banks will react after G7," said Hans Redeker, chief foreign exchange strategist, at BNP Paribas in London. U.S. Treasury Secretary John Snow, meanwhile, is due to testify on the 2005 budget before the House Budget Committee at 2:00 p.m. EST (1900 GMT). His testimony to the Senate committee on Tuesday was postponed. Caution is also looming ahead of a key U.S. jobs report on Friday. Non-farm payrolls, forecast to rise 150,000 in January compared with just 1,000 in the previous month, are closely eyed as an improving labor market could hold the key to the timing of a rate hike in the United States. (Additional reporting by Manuela Badawy in New York and Mariko Hayashibara in London)
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