NEWS / Monetary Policy

Dollar flat vs euro after hitting 1-month high

By David McMahon

NEW YORK - The dollar shot to fresh one-month highs against the euro and sterling on Friday after data showed that the U.S. trade deficit grew by less than expected in April.

The greenback erased its gains after its brief spike higher, and eased against other major currencies, but was still on track to post its best weekly gain in at least seven months on the dollar index .DXY>, a closely watched six-currency basket.

The dollar jumped sharply after the trade data, which also showed that import prices in May leapt by 1.6 percent, more than double Wall Street forecasts.

All up that helped reinforce expectations that the Federal Reserve will keep raising interest rates to ward off inflationary pressures, by lifting its overnight funds rate a quarter percentage point to 5.25 percent later this month.

"It's a pretty good number for the dollar all around," said Clyde Wardle, currency strategist at HSBC in New York.

The dollar has rallied strongly this week, buoyed by a series of hawkish comments from Fed officials that have put to rest speculation that the central bank's run of 16 straight rate rises is at an end.

The dollar's gains against the euro gathered momentum on Thursday, when the European Central Bank raised rates by a quarter percentage point but gave no clear signal that the pace of monetary tightening was set to quicken.

As of mid morning in New York trade the euro was flat on the day at $1.2650 EUR=>, after hitting a fresh 1-month low of $1.2595 on electronic broking system EBS, almost four cents below a 1-year high hit earlier in the week.

The euro rebounded sharply from those lows as strong bids began to roll in around $1.2600, traders said, although no fundamental reason was seen behind this move.

The dollar was trading down 0.35 percent at 113.75 yen JPY=>, well off its session high of 114.35 yen and below a 6-week high of 114.72 yen touched the previous day.

Sterling was barely changed on the day at $1.8440 after slipping as low as $1.8365 after the trade data, which showed that the U.S. deficit came in at $63.4 billion in April, below expectations for a reading of $65 billion.

The U.S. dollar fell sharply against its Canadian counterpart after data showed that Canada's economy added a whopping 96,700 jobs in May -- more than six times the number forecast -- and the jobless rate fell to a 31 year low.

The Canadian dollar CAD=> was at C$1.1060 to the U.S. dollar, compared to C$1.1198 before the data was released.

Fed Chairman Ben Bernanke is due to give a speech at the Massachusetts Institute of Technology at 11 a.m. (1500 GMT), but is not expected to address monetary policy.