Forex - Dollar remains firm ahead of US data, Treasury report on yuan

Forex - Dollar remains firm ahead of US data, Treasury report on yuan

	Published : Tue, 12 Jun 2007 14:08 By : Agencies Print this Story

LONDON (Thomson Financial) - The dollar remained firm ahead of key US data this week and speculation that China will be labelled a currency manipulator by the US Treasury.

The US currency has enjoyed one of its best weeks in a while as stronger than anticipated US economic news has helped shift the US Treasuries yield curve higher.

'The dollar has benefited from the hawkish shift in US interest rate markets, especially against the euro,' said Mitul Kotecha, head of global foreign exchange research at Calyon

'The rhetoric from Fed speakers this week is likely to maintain the pressure on US interest rate markets despite the soft data, implying that the dollar should remain supported,' he added.

The US Federal Reserve, which has kept interest rates unchanged for a year at 5.25 pct, continues to voice concern about inflation, making players all the more nervous ahead of the Fed's Beige Book economic report on Wednesday and US consumer price figures on Friday.

Elsewhere, US lawmakers are to unveil a proposed law this week that could address concerns China is keeping its currency allegedly undervalued.

Details of a bipartisan bill 'to address undervalued currencies that harm US trade and economic interests' would be unveiled tomorrow, a statement from the powerful Senate committee on finance said. They would be released by four senior Senators who crafted the bill, and on the same day when the US Treasury makes its semiannual report about currencies to Congress.

The administration of US President George Bush is under pressure from lawmakers in the Democratic-controlled Congress to label China a 'manipulator' of its yuan currency.

Lawmakers say China grossly undervalues the yuan, making US-bound exports cheaper and fuelling a ballooning US-China trade deficit, at 232.5 bln usd last year.

Julian Jessop, chief international economist at Capital Economics, reckons that the Treasury is in danger of losing its credibility if it does not cite China is a currency manipulator and noted that the timing of the advance notice is unusual.

'The last report was slipped out just before Christmas without any fanfare, which suggests that the Treasury might actually have something interesting to say this time,' he said.

In addition, Jessop said a formal verdict of 'currency manipulation' may encourage the Senators to put their 'more aggressive proposals on hold'.

A verdict against China would only require the Bush administration to begin negotiations with China over its exchange rate policies.

Elsewhere, the pound was firm in the wake of yesterday's hawkish speech by Bank of England governor Mervyn King.

He said the rate-setting Monetary Policy Committee will be 'watching closely' indicators of capacity pressures, pricing intentions and inflation expectations.

'If these indicators remain elevated, the MPC may need to take further action,' King added.

King's comments last night also diminished the market's response to the confirmation of a further improvement in UK inflation in May.

The office for National Statistics said the annual CPI inflation rate eased to 2.5 pct in May from 2.8 pct in April. The fall was in line with expectations.

The statistics office said the biggest downward effect came from lower average gas and electricity bills, which have continued to fall this year as opposed to a year ago.

'King effectively neutered the good news contained in this months release, directing market attention firmly to the medium-term and highlighting concerns over the outlook,' said David Page, an analyst at Investec Securities.

'One more rate hike (to 5.75 pct) looks inevitable; we suspect that should be it,' he added.

London 1335 BST London 0900 BST

US dollar

yen 121.76 up from 121.66

sfr 1.2406 up from 1.2403

Euro

usd 1.3340 down from 1.3346

yen 162.56 up from 162.38

sfr 1.6553 unchanged 1.6553

stg 0.6756 down from 0.6765

Sterling

usd 1.9740 up from 1.9731

yen 240.40 up from 240.04

sfr 2.4491 up from 2.4470

Australian dollar

usd 0.8418 down from 0.8434

stg 0.4262 down from 0.4275

yen 102.52 down from 102.61

pan.pylas@thomson.com

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