The dollar hit a four-month high against the euro on Tuesday as the market positioned for retail sales data from the United States later in the session to see if it confirmed recent bullishness on the U.S. economy. As Europe returned from what was in most countries a four-day break, market attention fixed chiefly on U.S. fundamentals, with economists expecting March retail sales to show a rise of 0.6 percent at 1230 GMT. After a surprisingly strong U.S. employment report at the start of this month, investors are scanning U.S. data for any hints the economy is strong enough to warrant higher interest rates, which would lend support to the dollar's recent recovery. "People are looking at upcoming U.S. data and expecting them to confirm the recovery scenario and that is providing support to the dollar," said Ryan Shea, senior international economist at Bank One. "This is in contrast to what's going on in Europe. Last week the survey data out of Europe were pretty soft, German unemployment was soft."
At 0950 GMT the euro traded 0.7 percent lower on the day at $1.1992 having dipped to a four-month low of $1.1974 earlier. The euro is now down nearly five percent against the dollar since the start of the year. The dollar traded about 0.8 percent higher against the Swiss franc and sterling and firmer against the higher-yielding Australian and New Zealand dollars. The dollar also reversed earlier losses against the yen, firming nearly half a percent to 105.84 yen . However, the yen remained firm against the euro, trading more than a third of a percent higher at 126.89 yen . Traders said the yen received help from the Nikkei share average's <.N225> rise to 32-month peaks and a rise in other Asian currencies after a surprise policy tightening by the Monetary Authority of Singapore on Monday raised expectations the currencies would be allowed to strengthen.
BUSY WEEK
With Europe only just back from holiday on Tuesday morning, dealers said some of the dollar's gains came on the back of a reversal of position-squaring that had kept the greenback somewhat subdued before the long Easter weekend. But expectations for strong U.S. retail sales also figured strongly in the morning's trade. "There's some positioning going into the U.S. retail sales figures which are expected to be on the strong side today, highlighting the positive cyclical side of the dollar," said Paul Mackel, currency strategist at ABN Amro in London. "On top of that this is a big week for U.S. earnings announcements so there may be some positive sentiment building up for the U.S. equity market and that should boost sentiment for the dollar as well." Markets also focused on recent comments from San Francisco Federal Reserve President Robert Parry, who said in a newspaper interview published on Sunday that interest rates could not remain at their 1958 lows of 1.0 percent forever. He said rates would have to rise at some point, perhaps to 3.5 percent, which he said would be a "natural" rate for federal funds if inflation averaged 1-2 percent. First quarter earnings from companies like Intel and State Street are due on Tuesday with a host of other big companies reporting later in the week.
TOKYO STOCKS
In Tokyo, the Nikkei share average ended trade at 12,127.82, up 0.71 percent, after hitting a 32-month high. However, eyes were also on the fate of three Japanese civilians held hostage in Iraq since Thursday. Traders say if the three are not let go it could be a blow to Prime Minister Junichiro Koizumi, whose party faces an Upper House election in July. Meanwhile, fundamentals continued to indicate a brightening economic outlook for Japan. The domestic corporate goods price index was up 0.2 percent in March from the previous month, Bank of Japan figures showed. The BOJ's preliminary estimates showed the index was also up 0.2 percent from the same period last year, marking the first gain since July 2000.////