The dollar held near one-week highs against European currencies on Thursday after U.S. manufacturing figures came in much stronger than expected. The New York Federal Reserve's Empire State manufacturing index climbed to 28.3 in September, better than a rise to 18.8 forecast in a survey. U.S. industrial production figures also hinted at a recovery in the downbeat manufacturing sector despite a lower-than-expected headline reading. "The market had been going back and forth on weak data from both the U.S. and Japan, so it was a bit surprised by good numbers," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. Industrial production rose just 0.1 percent last month, below Wall Street forecasts for a 0.5 percent gain, but economists said big drops in electrical output due to an unusually cool summer masked strength in the manufacturing sector. Manufacturing output gained a solid 0.5 percent, building on an upwardly revised 0.9 percent in July, which lifted the sector out of a four-year slump. At 0540 GMT, the euro bought around $1.2150 , near a one-week low of $1.2135 struck overnight and flat from late U.S. levels.
The dollar was also little changed around 110.00 yen . Sterling fetched $1.7780 , flat from late U.S. levels, and not far from Wednesday's one-week low of $1.7738. "I think there has been excessive pessimism over the U.S. economy in recent days. So if we have more strong figures, the dollar could rise above recent ranges," Yamashita said. Ahead of a meeting of the Swiss central bank later in the day, the Swiss franc was at 1.2700 per dollar , near a one-week trough of 1.2716 set on Wednesday. The Swiss National Bank is widely expected to raise rates by a quarter of a percentage point at its quarterly review of monetary policy.
TIGHT BANDS
The dollar has been stuck in an unusually narrow range between 109.00 and 110.50 yen in the past month. Likewise, the euro has floated mostly in a $1.20-23 range over the last three months. Many analysts expect range-bound trade to continue, given uncertainty about the course of the U.S. Federal Reserve's monetary policy and the presidential election in November. "I think this range-bound trading could continue until after the U.S. presidential election," said Kikuko Takeda, currency analyst at Bank of Tokyo-Mitsubishi. "The market could be swayed by data or comments from Fed officials but it is likely to return to current ranges." Most market players expect the Fed to raise rates by 25 basis points at its Sept. 21 meeting, but views are divided over whether the central bank would raise rates at its November and December meetings. Thus the market is also looking to the U.S. consumer price index (CPI), due at 1230 GMT. Economists on average see CPI rising 0.1 percent in August and core CPI, which strips out volatile food and energy prices, rising 0.2 percent. "If CPI comes in weaker than expected, that could stoke expectations that the Fed will not raise rates in November and December," said Mitsuru Sahara, vice president of forex at UFJ Bank. Also coming up is the Philadelphia Fed's business conditions index for September at 1600 GMT. The surprise jump in the New York Fed index led some analysts to predict that the Philadelphia Fed's index could come in higher than the market forecast for 24.5. It was 28.5 in August.///