CADIZ TRADERS THREAD

Forex - Dollar garners support from solid US economic news
LONDON (AFX) - The dollar continued to garner some support in
holiday-thinned trade as further strong US economic news continued to cement
expectations that the US Federal Reserve will continue to raise the cost of
borrowing for some months to come.
The closely-watched Conference Board survey yesterday found consumer
confidence in December surging by more than anticipated and back up to levels
last seen before Hurricane Katrina in August.
Its main index rose to 103.6 from a downwardly revised 98.3 in the previous
month and expectations of a more modest increase to 102.6. The organisation
credited the improvement to the economy's resilience, the recent fall in oil
prices and sustained jobs growth.
Meanwhile, the euro slipped against the US currency after weaker than
expected money supply growth in the 12-nation single currency zone tempered
expectations of aggressive interest rate hikes from the European Central Bank.
The ECB reported that euro area M3 money supply grew 7.6 pct year-on-year in
November, down from an 8.0 pct growth rate in October and expectations of no
change.
"Generally, the US numbers have been fairly good and the euro zone M3 data
has been a bit softish," said Steve Barrow, currency strategist at Bear Stearns.
Apart from recent falls, the dollar has been buoyed for most of this year,
following a three-year downturn, by a growing focus on interest rate
developments around the world.
And despite some relatively bearish commentary at the last meeting, the
Fed's rate-setting body, which meets next on Jan 31, is expected to sanction the
14th consecutive quarter-point increase in the Fed funds rate to 4.50 pct.
Today's US existing home sales data for November are likely to be strong too
and likely to underpin the dollar's gains over the day, analysts said.
Earlier this month, the Fed lifted the benchmark rate by a quarter point to
4.25 pct but omitted to say in its accompanying statement that monetary policy
remains accommodative. The softer rhetoric was taken to mean that the rate
hiking cycle may be nearing its end -- a factor that weighed on the dollar.
Meanwhile, the ECB is expected to raise interest rates again in the coming
months on firmer economic news out of the 12-nation currency zone, particularly
from Germany, the euro zone's largest economy. The ECB raised its key refi rate
a quarter point to 2.25 pct earlier this month, its first increase in over five
years.
Elsewhere, the pound continued to struggle despite some strong UK economic
data.
Bear Stearns' Barrow said much of the pound's current woes, particularly
against the dollar, may be to do with a slowdown in repatriation flows.
UK companies with interests abroad often bring back profits in December to
pay corporation tax, which is due in January.
4CAST currency strategist Chris Furness said there's some talk of M&A
activity in the market but cautioned that all the currency moves are currently
exaggerated by the illiquid trading volumes.


London 1025 GMT Singapore 3.09 pm (0709 GMT)
US dollar
yen 117.86 unchanged 117.86
sfr 1.3161 up from 1.3144
Euro
usd 1.1846 down from 1.1859
stg 0.6890 up from 0.6881
yen 139.66 down from 139.73
sfr 1.5592 up from 1.5585
Sterling
usd 1.7194 down from 1.7226
yen 202.69 down from 202.97
sfr 2.2630 down from 2.2639
Australian dollar
usd 0.7299 unchanged 0.7299
stg 0.4245 up from 0.4236
yen 86.03 up from 86.020


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