Euro stronger; US dollar strong; yen weaker on mixed data

Story link: Euro stronger; US dollar strong; yen weaker on mixed data

The US dollar was stronger on the week based largely on comments by various Federal Reserve officials that interest rates in the US will continue to rise despite the effects of Hurricanes Katrina and Rita. In fact, some, including Philadelphia Fed president Anthony Santomero, have suggested that reconstruction after the hurricanes would benefit the economy in 2006. There was evidence of the need for more monetary tightening in the form of new core personal consumption expenditure deflator data. This measure of inflation, one of the Fed’s favorites, was up to 2 percent in August.

Elsewhere, the euro recovered some from declines earlier in the week on the hope that Germany’s political parties might soon come to an accommodation on power-sharing in the wake on inconclusive results in the recent elections there. Also helpful was a report that the eurozone business climate indicator was in positive territory after six months of negative readings.

The euro sat at $1.2068 in relation to the US dollar, while it gained 0.4 percent to £0.6818 versus sterling.

The yen suffered from indications that its economy was still in deflation as the September core consumer prices data for Tokyo, released on Friday, showed a decline of 0.4 percent from last year at the same time.

The yen lost 1.1 percent to ¥113.36 against the US dollar and was down 1 percent to ¥136.69 in relation to the euro.

Sterling’s difficulties were not helped by new data that showed consumer confidence down again. In addition, retail sales volumes were falling at the fastest rate in over two decades and growth of the gross domestic product in the second quarter was at its weakest in 12 years. Merrill Lynch analysts said that it believes that the Bank of England will be forced to further cut UK interest rates.

Sterling lost 0.7 percent to $1.765 versus the US dollar, and it had been down to a six-month low of $1.7567 earlier in the day.

The Canadian dollar was helped by rising natural gas prices and an energy sector that is large and attractive to foreign investors. The loonie was up 0.7 percent to $1.1649 in relation to the greenback.