The dollar was stuck on Monday as investors awaited a raft of data due this week to gauge the strength of the U.S. economy and the extent of further rises in U.S. interest rates this year. The currency came under pressure earlier in the day after data on Friday showed a decline in U.S. producer prices, leading investors to question whether the Federal Reserve would raise rates in September and beyond. However losses were limited, supported by buying from Japanese importers. "Following Japan GDP (gross domestic product) on Friday, it's hard to chase up the yen," said Jun Kitazawa, assistant vice president of forex at Brown Brothers Harriman in Tokyo. Second quarter GDP was revised down on Friday, surprising the market and heightening concerns that economic growth in Japan may be slowing. At 0545 GMT, the dollar fetched around 109.53/56 yen , down slightly from around 109.65 in late New York trade on Friday. Traders said the dollar would likely stay trapped in a range of 109-111 yen this week, although some see the risk of a dip into the 108 zone thanks to repatriations by Japanese exporters ahead of first-half book-closing at the end of September. The euro was little changed at $1.2265 . The yen was trading at 134.31/36 per euro , also hardly changed but above a three-week low of 134.94 struck on Friday.
U.S. DATA AWAITED
On Friday, the August producer price index came in down 0.1 percent after a 0.1 percent rise in July. Core PPI, excluding food and energy prices, also dropped 0.1 percent, the first decline since February, after a 0.1 percent increase in July. Traders said the lower producer prices, especially in light of soaring energy costs, dented expectations the Fed would continue to raise rates after a widely expected 0.25 percentage point boost at the central bank's next meeting on Sept. 21. "A rate hike next week looks very likely, but you can't rule out the risk of dollar selling this week if any of the upcoming data casts doubt on that scenario," said Hideaki Furumaya, forex manager at Trust & Custody Services Bank. The Fed lifted its benchmark rate to 1.5 percent in August in its second rate rise this year. The central bank has suggested it would continue to raise rates at a "measured" pace. The market's focus was squarely on upcoming U.S. economic data this week, including the current account, net capital inflows, retail sales, consumer sentiment and consumer prices. "There'll be a fair bit of attention on the data, as since (Fed chief Alan) Greenspan's statement last Wednesday the market revised down its expectations for aggressive rate hikes," said Naomi Fink, senior currency strategist at BNP Paribas.
Greenspan said last week that inflation expectations had eased, and that it was tough to assess the economic impact from higher oil prices. Currency markets showed little reaction to reports on the weekend that North Korea was rocked by a huge explosion last week that media in South Korea media said produced a mushroom cloud of up to 4 km (2.5 miles) in diameter. North Korea said on Monday that the blast was part of a hydro-electric project, the BBC quoted the North's foreign minister as saying.///