The dollar steadied near a one-month high versus the yen and held recent gains against other major currencies on Thursday as a run of upbeat U.S. data bolstered expectations of higher U.S. interest rates. Already buoyed by robust retail sales data earlier this week, the dollar got a further boost on Wednesday as figures showed the U.S. trade deficit narrowed in February, while consumer prices rose faster than expected in March. "Investors are responding to a changing interest rate landscape in the U.S. and are adjusting their views on the dollar," said Mark McFarland, foreign exchange strategist at UBS Warburg. He added the release of New York manufacturing data later in the session would be key in determining if the dollar could extend its recent rally. The dollar powered to a one-month high of 109.28 yen in choppy Tokyo trade before paring gains to stand at 108.50 by 0800 GMT. It was steady against the euro at $1.1980 , just over a cent away from 4-1/2 months highs scaled in the previous session. The dollar also took a breather against high-yielding currencies after stunning gains in the previous two trading sessions. The Aussie dollar clawed back to US$0.7392 after falling nearly four cents in 48 hours to below 73 cents, while the New Zealand dollar licked its wounds at US$0.6360 after posting its biggest one-day loss on Wednesday since September 2001.
WHERE NEXT?
The U.S. currency has already recouped around 10 cents from February's record low against the euro and five percent from four-year lows against the yen set last month. Analysts said further upbeat U.S. data would be needed if the dollar was to extend its gains. U.S. weekly jobless claims and a manufacturing survey from the New York Federal Reserve are both due for release at 1230 GMT. Markets expect 335,000 initial claims for the week ending April 10, compared with 328,000 in the previous week. The New York manufacturing index is expected to rise to 30.0 in April from 25.3 in March. Analysts say the U.S. central bank may be reluctant to raise interest rates unless the U.S. labour market is showing signs of sustainable improvement. Low U.S. interest rates, currently 1.0 percent, have weighed on the dollar by encouraging investors to seek higher returns elsewhere. San Francisco Federal Reserve President Robert Parry said on Wednesday the Fed would have to raise its benchmark funds rate "at some point". But he added the performance of the U.S. jobs market was "far below" where the Fed would expect it to be in a typical expansion.
IRAQ WATCH
The market also had an eye on developments in Iraq, after Japanese media reported that two more Japanese civilians had been abducted in addition to three taken hostage by militants last week. Analysts said these developments could weigh on the yen as Prime Minister Junichiro Koizumi's handling of the situation could affect the showing of his ruling coalition in this month's Lower House by-elections and a poll for parliament's Upper House in July. "I think there is a real focus on how this is going to affect the Koizumi government and its potential to enact reforms," said Naomi Fink, senior currency strategist at BNP Paribas in Tokyo. Traders said that foreign selling of Japanese stocks was also weighing on the yen. The Nikkei average <.N225> ended trade down 2.46 percent, its biggest decline in four months after rising to its highest level since August 2001 in early trade. The market showed little immediate reaction to an audio tape purportedly from Osama bin Laden and aired on Arabic television stations that offered a truce with European states if they stopped attacking Muslims.///www..com