MW: Dollar stays mainly higher as U.S. economic data turn mixed
By Deborah Levine & William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The dollar largely held the line on gains Friday after a government report showed consumer spending fell in September, threatening the ability of the nation's economy to continue expanding and weighing on equities.
Equities opened lower and stayed in the red, effectively supporting the greenback.
The dollar index (DXY 76.28, +0.36, +0.47%) stood lately at 76.307, up from 75.979 late Thursday.
The index, which tracks the performance of the U.S. unit against a basket of other major currencies, is on pace to post its first weekly gain in four. It was at 75.468 last Friday.
Still, the benchmark's fallen nearly 1% over the month of October, continuing a string of losses stretching back to July.
The euro changed hands at $1.4762, down from $1.4828 on Thursday.
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The British pound also gave ground, slipping to $1.6507 from $1.6538 Thursday. It's gained 1.6% this week, adding to a 3.5% gain this month.
The dollar fell to 91.20 Japanese yen, down from 91.47 yen on Thursday.
On the data front, U.S. personal spending in September fell 0.5% as incomes came in flat, in line with forecasts. Two measures of inflation, the employment cost index and personal consumption expenditure, both were as analysts had expected. See story on spending.
Risk-happy traders were happy to push the dollar back down Thursday after government data showed the U.S. economy returned to growth in the third quarter with a 3.5% rise in gross domestic product.
"Yesterday's GDP print was a welcome boost for the recovery bulls," said Boris Schlossberg, director of currency research at GFT.
However, "in order for the rally to continue markets will have to see further proof of U.S. economic expansion," he said.
Currency traders largely ignored a private report showing the Chicago purchasing managers index rose more than expected, to a reading of 54.2 in October from 46.1 in September. Levels over the 50 mark indicate more firms taking part in the survey said business was improving than said it was worsening.
They also shrugged off the last revision in the University of Michigan/Reuters survey of consumer sentiment for October. It showed a reading of 70.6, up from its previous estimate of 64.4 earlier this month and a little higher than anticipated, but was still below the reading in September's survey.
"The dollar firmed after the softer Michigan sentiment outcome, as stocks extended losses," said analysts at Action Economics.
Meanwhile, an unexpected drop in German retail sales trimmed support for the euro. See full story.
The single currency had pushed to a 14-month high above the psychologically important $1.50 level last week, but it then turned south as equity markets stumbled. Despite a decline for the week, the euro's still on track to rise 1.4% in October, which will extend its streak of monthly gains to four.
Yen plays off Bank of Japan
Currency traders' willingness to continue piling into riskier assets had faded during Friday's Asian trading.
A hawkish, more anti-inflationary tone set forth by the Bank of Japan had the effect of boosting the yen, Schlossberg said.
The Japanese currency made broad-based gains as the central left its overnight-call-rate target at 0.1% but bank began its gradual pullback from credit markets, announcing it will end one of its special liquidity-boosting measures while extending another. See full story.
Despite its retracement to close out the week, the dollar has advanced on the yen this month.
"Low Japanese interest rates continue to make it an attractive funding currency," Marc Chandler, head of global currency strategy at Brown Brothers Harriman, wrote in an email. The yen has been a popular player for carry trades, in which a cheap, low-yielding currency is used to buy higher-yielding assets and profit on the difference.
