Major forex currencies tread water

In overnight trading, the US Dollar traded slightly weaker in a technical range against the majors after a poor Philadelphia Fed manufacturing index.

However, technical strength and positive sentiment helped the Greenback to survive another set of soft data releases. The manufacturing index tumbled to a 25-month low of -2.2 in June against expectations of 10 (previous 7.3).

In the ongoing pathetic EU summit, members agreed that the EU constitutional ratification process needs to continue but the November 2006 deadline may be pushed back. Even so, the euro's losses were muted after its tumble of more than 10 percent against the dollar in three months.

In other US data releases, weekly jobless claims climbed slightly to 333k in the week ended June 11 from the previous week's 332k. Housing starts fell to 2 million in May from 2.03 mln in April.

Overall, the dollar's gains were also being kept in check by a surge in commodity prices which has sent dealers flocking to currencies such as the Australian and New Zealand dollars which usually gain as their commmodity exports boom.

The euro was around $1.2100 as of 0020 GMT, down slightly from late U.S. trade where it slipped as low as $1.2056, not far from a nine-month low around $1.2015 hit on Wednesday.

The dollar traded around 108.80 yen down around 0.1 percent on the day. It touched an eight-month high around 109.70 yen earlier in the week but dealers said it had been pulled back down after aggressive selling by Japanese exporters.

The Australian dollar was trading at around 77.40 U.S. cents not far short of a five-week high of 77.44 cents hit on Thursday. The Reuters CRB commodities index has jumped more then two percent this week.

Despite a recent mixed bag of U.S. economic data, the dollar has been supported this month by a steady chorus of Fed officials suggesting that U.S. interest rates still have room to rise, even after a series of eight straight rate hikes.

Outlook for the day
EUR/USD - Euro is expected to trade in 1.2050-1.2150 range and is seeking fresh direction for short term movement. Corrections to 1.2300 levels are not ruled out.
GBP/USD - With a support at 1.8175-1.8200 area, GBP is expected to attempt 1.8300 levels. Exporters are advised to take selective cover near 1.8300.
USD/JPY - Yen is expected to trade in 108.50-109.50 range.

US Dollar little changed vs. Yen in Asia, down v euro

The dollar was little changed against the yen but lower against the euro in Asian trading on Thursday morning. The dollar was trading at 109.20 yen on the Tokyo foreign exchange market by late morning, up 0.04 yen from late Wednesday but below the 109.23 yen it bought in New York later that day. The euro rose to $1.2096 from $1.2045 late Wednesday and to 132.12 yen from 131.70 yen.

The dollar was trading in a narrow range in Tokyo.

In New York on Wednesday, the dollar hit a nine-and-a-half-month high against the euro amid a lingering malaise about Europe's economic and political future and improved economic figures in the United States.

But investors remain cautious about the euro ahead of the European Union summit which starts Thursday. Uncertainty about an economy tend to push that currency lower.

Analysts say the euro may face further declines unless the EU can bridge its differences on how to take the EU constitution process ahead and resolve pending disagreements over the budget.

Members of the 25-nation EU bloc are at loggerheads over the budget, coming hard on the heels of the "no" votes to the constitution by France and the Netherlands.

In Washington, American consumer prices fell 0.1 percent in May, their first decline in 10 months as energy prices retreated after a big run-up in the previous three months.

The U.S. Labor Department reported that the decline in its closely watched Consumer Price Index followed big gains of 0.4 percent in February, 0.6 percent in March and 0.5 percent in April. Those increases had been driven by a surge in energy costs as crude oil prices hit all-time highs in early April.

U.S. industrial production rose 0.4 percent in May twice what analysts had forecast reversing a 0.3 percent decline in April. The increase reflected a big 0.6 percent jump in output in manufacturing as auto production stopped falling and other sectors posted increases.

Interest in US Dollar increases

The US Dollar once again overtook the Euro in overseas trading despite soft US PPI and retail sales data figures.
The Sterling and Yen however avoided further falls and traded flat.
The US PPI dropped 0.6% in May vs a rise of 0.6% in the previous month, while core PPI (excluding food and energy) rose 0.1% from 0.3% during the same period. US May Retail sales fell by 0.5% from an increase of 1.4% and retail sales excluding auto sales fell by 0.2% in May from a 1.1% rise in the previous month.
The Euro also took a beating after the UK's PM- Tony Blair spoke of a "sharp disagreement" with French President Jacques Chirac over the future of the EU budget. The UK is under pressure to give up the annual rebate it receives under the terms of the current EU budget.
Whilst the rest of Europe's beaurocrats continue to ignore the key fact that they are out of touch with the electors- as the French and the Dutch recently proved. Will Luxembourg be the next country to come to it's senses after their deluded Prime Minister asked to be backed or he would resign?
The US TICS capital inflows and CPI figures are some of the important data releases lined up for today.

Outlook for the day
EUR/USD - Euro is expected to trade between 1.2000-1.2100 range. It needs to hold near 1.2000 levels for some time to see any meaningful recovery.
GBP/USD - GBP is expected to trade in 1.8000-1.8100 range.
USD/JPY - USD/Yen is consolidating its gains above 109.00 and is expected to trade in 109.00-110.00 range.

US Dollar rises to multi month highs vs euro, yen

The dollar hit a nine-month high against the euro and an eight-month peak versus the yen on Monday, extending gains after U.S. data and comments from Fed chief Alan Greenspan raised prospects for more interest rate hikes.

Following last week's better-than-expected U.S. trade data and Greenspan's comments that the economy was on a "firm footing", the market is looking to see if this week's figures would reinforce expectations of higher U.S. rates.

The euro had fallen to $1.2036, its lowest level since early September 2004, before pushing back to $1.2060 by 1200 GMT to stand at 0.5 percent down on the day.

The dollar also rose more than half a percent against the yen and hit its highest level in eight months at 109.47, after rallying 1.2 percent on Friday in its biggest daily gain in more than four months.

Data showed the Japanese economy grew less briskly than originally estimated in the first three months of 2005, expanding by 1.2 percent compared to the original estimates of 1.3 percent.

Finance ministers from the world's rich nations (G8) during their weekend meeting in London kept up pressure on China to move towards more flexible exchange rates, but produced no clues as to the timing.

Sticking to tradition, G8 did not mention currency issues in its communique as central bankers from the group did not attend the meetings.

Higher interest rates and the relatively lucrative yields on U.S. deposits have helped the dollar rise more than 10 percent against the euro so far this year.

More rate hikes are expected as soon as at the Federal Reserve's next policy meeting on June 29-30. Another quarter-point hike then would be the Fed's ninth straight and it would take the funds rate to 3.25 percent.

In contrast, the euro zone's sluggish economy is raising expectations that the European Central Bank's next move may be an interest rate cut.

A weekend interview given by ECB Chief Economist Otmar Issing added fuel to these expectations after he said risks to price stability had decreased. The central bank has kept rates at 2 percent since June 2003.

The outlook for higher U.S. interest rates has attracted foreign capital into the country, offsetting concerns about the huge U.S. current account deficit.

U.S. April capital flows data, due on Wednesday, could add to evidence the United States is comfortably financing its trade deficit.

U.S. producer and consumer price indices, due on Tuesday and Wednesday separately, are expected to give clues for any signs of an uptick in prices, which could lead the Fed to raise rates at an even faster pace to ward off inflation.

The week will also see European Union leaders debating the future of the bloc's political and monetary integration after France and the Netherlands voted "no" to the EU constitution.

Euro slumps to 9- month low against the Dollar

The euro hit a fresh nine-month low against the euro as widening interest rate differentials between the US and Europe combined with last week’s better-than-expected US trade data to extend the single currency’s recent slide.

The dollar rose 0.5 per cent against the euro to $1.2050, after touching $1.2036, its strongest level since early September 2004.

Last week’s comments from Federal Reserve chairman Greenspan about the potential for further monetary tightening in the world’s largest economy continued to underline interest rate differentials between the US and the eurozone, while weekend comments by European Central Bank Council member Issing suggesting the ECB may be slowly moving toward monetary easing further highlighted the gap.

The rhetoric has helped drive 10-year eurozone bond yields 90 basis points below 10-year Treasury bond yields, the widest gap since the end of March.

This week, analysts were expecting US producer price inflation data, released on Tuesday, and consumer price inflation data, released on Wednesday, to be the centre of market attention, however given the pullback in energy prices over the month analysts were expecting overall US inflation data to be well contained.

The dollar also made gains against the yen, rising 0.4 per cent to hit an eight-month high of Y109.25, boosted by a downward revision of Japanese first-quarter GDP. Real GDP grew 4.9 per cent on an annualised basis compared to the initial estimate of 5.3 per cent.

Sterling hit its lowest level since October against the strengthening dollar, trading down 0.4 per cent to $1.8030, as producer price data revealed that UK input prices rose 0.3 per cent in May. The data meant the margin squeeze on UK manufacturers was likely to get worse. This looks likely to prevent manufacturing from experiencing a robust recovery so output will struggle in the second quarter. Against the euro, sterling was unchanged at £0.6683.