Safe-haven dollar mixed on reports, Fed minutes

AP News
Posted: Nov 24, 2009 4:03 PM

The dollar was mixed Tuesday as economic reports signaled a modest rebound, while the Federal Reserve said it could take "five or six years" for a recovery and inflation is under control.

The euro will not likely be able to push much above $1.50 this week, said Steven Pearson, currency strategist at Bank of America Merrill Lynch. He expects the safe-haven dollar to get a boost from more weak U.S. economic data and from traders' cutting back on risky bets as 2009 winds down.

The euro touched $1.5001 on Monday, its highest point since Nov. 16.

The 16-nation euro edged up to $1.4975 from $1.4973 late Monday in New York. Meanwhile, the British pound dropped to $1.6593 from $1.6621, but the dollar slid to 88.56 Japanese yen from 89.02 yen.

The dollar was also higher against the New Zealand and Australian dollars, which analysts use as barometers of traders' appetite for risky currency bets.

On Tuesday, the Conference Board, a private research group, said its Consumer Confidence Index rose to 49.5 this month from 48.7 in October. That's an improvement, especially from a record low of 25.3 in February, but not by much. It takes a reading above 90 to signal that the economy is on solid footing. A level above 100 implies strong growth.

Moreover, the government said gross domestic product grew at a 2.8 percent pace from July to September, less than its preliminary 3.5 percent estimate last month. Weaker readings on consumer spending and commercial real estate helped tamp down the government's growth estimate, as did a bigger-than-expected drag from the trade deficit.

The lower reading and weak consumer confidence put a damper on stocks Tuesday morning, with the Dow Jones industrials dropping 0.5 percent, and helped push up the dollar.

Investors see safety in the greenback and its access to the Treasury market. Short-term Treasurys are considered one of the world's most liquid and secure investments.

In updated economic projections released Tuesday afternoon, the Fed said the unfolding recovery will take time.

Minutes from the Fed's interest-rate meeting earlier this month said record-low interest rates could fuel a speculative bubble that would spur inflation, but the likelihood of that is relatively low and "any tendency for dollar depreciation to intensify or to put significant upward pressure on inflation would bear close watching."

At the Fed's Nov. 3-4 meeting, it said the key interest rate would likely stay at "exceptionally low levels" for an "extended period." The current record-low interest rate at a range near zero has weighed down the dollar as investors transfer funds to where they can earn better returns.

Michael Woolfolk, senior currency strategist at Bank of New York Mellon, said the Fed's remarks "reinforce my view that in 2010 we're going to see more rapid normalization of interest rates than is currently priced in the markets."

Joseph Trevisani, chief market analyst at FXSolutions, said that though it's unusual for the Fed to make a direct reference to the dollar, the comments may not ease investors' concerns.

"There seems to be a bit of an effort on the Fed's part to at least let the markets know its aware of the danger of a depreciating dollar," he said. "Right now the markets would need more than simply words."

In other trading Tuesday, the greenback slipped to 1.0082 Swiss francs from 1.0093 francs late Monday, and rose to 1.0577 Canadian dollars from 1.0553.