The dollar rose on Tuesday after oil prices tumbled, but traders said the currency's recovery from multi-month lows hit the previous day could be short-lived on worries about the U.S. economy. On Monday, the dollar sank to 1.2535 per euro , its lowest level in seven and a half months, and a three-month trough of 1.2270 Swiss francs after capital flow data suggested foreign demand for U.S. assets could be slowing. "Profit-taking in the euro and a fall in oil prices are providing temporary support for the dollar," said Takashi Toyahara, manager of forex trading at Nomura Securities. At 0531 GMT, the dollar was at 1.2464/67 per euro , against $1.2495 in late U.S. trade. It bought 1.2355/60 francs versus 1.2314. Against the Japanese currency, the dollar fetched 109.39/42 yen , up from around 109.26. U.S. light crude oil traded around $53.32 , down 3.6 percent from the fresh record high of $55.33 hit in New York on Monday.
But dollar bears said any rebound in the U.S. currency would likely be short-lived because they saw signs of a slowdown in U.S. economic growth. "We've been seeing weak U.S. data recently which points to a slowdown in the economy, so I think the trend remains unchanged that dollar-buying will be limited," said Jun Kitazawa, assistant vice president of the forex section at Brown Brothers Harriman in Tokyo.
ELECTION DIRECTION
Most players do not expect a clear trend in the market until after the U.S. presidential election on Nov. 2., with daily currency moves seen swayed by oil prices until then. "It (the election) is a major event and players want to see the outcome," said Nomura's Toyahara. A CBS/New York Times poll released on Monday showed 47 percent of likely voters will vote for U.S. President George W. Bush while 46 percent backed Democratic rival John Kerry. Market players were awaiting the U.S. consumer price index (CPI) for September due at 1230 GMT to see if the Federal Reserve has been correct in minimising the importance of the recent surge in oil prices. The market is expecting a 0.2 percent increase both in the headline and core CPI, which strips out volatile food and oil costs.
Also due later in the day is a speech by Fed Chairman Alan Greenspan, his last scheduled appearance before the central bank meets on Nov. 10 to set monetary policy. On Monday, the dollar had slumped on figures showing that a net $59.0 billion had flowed into U.S. asset markets in August, compared with a downwardly revised $63.1 billion in July. But some traders said the market's focus was fixed on oil prices. "I don't think the Fed's rate outlook is such a key element now in the market. The focus is on oil, and short-term currency movements will be swayed by it," said Kitazawa of Brown Brothers. Elsewhere, the Bank of Canada was widely expected to lift interest rates on Tuesday by 25 basis points to 2.50 percent.///