Dollar advances versus euro on year-end deals

Steven C. Johnson
Reuters
Monday December 17, 2007

The dollar rose against the euro on Monday, boosted by year-end transactions and speculation that U.S. inflation may cause the Federal Reserve to be less aggressive in cutting interest rates next year.

The U.S. central bank is still expected to lower benchmark rates again in 2008 to shield the economy from a slumping housing market, but analysts think lurking price pressures could force officials to adopt a slower pace of monetary policy easing by keeping rates unchanged when they meet on January 30.

This would not significantly erode the dollar's yield advantage, since global growth worries are likely to prompt other major central banks to cut rates or hold them steady.

"U.S. economic data has been supportive of the dollar, particularly the inflation numbers, and you've seen a scaling back of expectations for Fed easing," said Nick Bennenbroek, senior currency strategist at Wells Fargo in New York.

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Data last week showed U.S. consumer prices posted their biggest gain in more than two years in November, with even the report's nonfood, non-energy "core" component beating forecasts.

In mid-afternoon New York trade, the euro traded down 0.3 percent at $1.4380, after earlier dipping to 1-1/2-month low of $1.4332 in overseas trade.

The dollar index, which tracks the greenback's performance against a basket of currencies, touched a two-month high of 77.804 .DXY overnight, before retreating to 77.471, down 0.1 percent on the day.

The dollar fell 0.1 percent to 113.20 yen, also hurt by weaker U.S. equities as investors worried that rising inflation and signs of weak holiday retail sales would further darken the economic outlook for the world's largest economy.

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