The dollar rose to 4-1/2 month highs against the euro and three-week highs versus the yen on Wednesday after the previous session's strong U.S. retail sales data boosted market bets that U.S. rate hikes were drawing near. Markets also looked ahead to U.S. consumer price data due at 1230 GMT, which is likely to add to the debate about when U.S. interest rates may rise from 1.0 percent. Forecasts are for a 0.3 percent increase and a 0.2 percent rise in the core prices. The faster than expected 1.8 percent rise in March retail sales reported on Tuesday bolstered market suspicions the U.S. economy may soon be strong enough to justify higher rates after a surprisingly strong employment report at the start of April.
"Retail sales from yesterday and the strong payrolls data seem to be leading the market into the expectations that the consumer sector is finally pulling the U.S. into recovery," said Matthew van Dyckhoff, foreign exchange sales manager at Brown Brothers Harriman. "More people are thinking about the prospect of rate hikes just around the corner." By 0745 GMT the dollar had backed off the session's peak of $1.1896 to stand fairly steady from late New York levels at $1.1950. The greenback remained half a percent higher against the yen at 107.11 after rising as high as 107.44. The greenback had also climbed more than one percent on the higher yielding New Zealand and Australian dollars.
DATA IN VIEW
U.S. trade data is also scheduled for 1230 GMT. The deficit is forecast to have narrowed to $42.5 billion in February from January's $43.06 billion as a weaker dollar supported a rise in exports but increased the price of oil, and made imports more expensive. U.S. quarterly earnings also continue with Texas Instruments and Apple Computer. U.S. stocks fell on Tuesday on expectations that the upbeat retail sales data implied higher interest rates. In addition to Tuesday's retail sales figures, February U.S. business inventories rose 0.7 percent, higher than expectations and signalling stronger than expected economic growth. Firm U.S. data again on Wednesday would further raise expectations that the Federal Reserve would move earlier to lift rates from a 46-year low of one percent.
"Following yesterday's strong data, I think the market has grown optimistic that today's CPI figures will also come in strong," said Shinichi Takasaka, manager of the forex division at Mitsubishi Trust and Banking. Elsewhere, U.S. Vice President Dick Cheney urged China to let financial markets determine the value of the yuan, the latest in a long line of American officials to press Beijing on currency reform. Cheney's comments came in meetings with top Chinese leaders, U.S. officials said, but they played down prospects of a change in Beijing's policy. China's foreign exchange reserves climbed to a record $439.8 billion at the end of March, up 39.2 percent from a year earlier, amid widespread speculation of a revaluation of the yuan. The reserves, the world's second highest after Japan's, rose $36.5 billion from $403.3 billion at the end of 2003. The growth came despite a $8.4 billion trade deficit in the first quarter as foreign capital poured in. The central bank, which announced the data on Wednesday, did not elaborate.////