LONDON (AFX) - The dollar rose against most leading currencies in early trade ahead of a slew of U.S. economic data which should maintain a bullish outlook for interest rates, dealers said.
Today's data is expected to have a fairly weak tone, with industrial production expected to fall for the fifth consecutive month and Michigan sentiment for March expected to weaken further, they said.
The real focus remains on how much will the U.S Federal Reserve cut interest rates at the Federal Monetary Policy Meeting next week.
National Australia Bank, Chief economist Steve Hannah, said: "There has been a sharp rally in interest rate markets in the U.S. overnight on the view that the Fed may possibly cut rates by 75 basis points from the previous 50 basis point forecast. This ironically is helping the currency. Although it is reducing interest rate support, it's increasing the chances that the U.S. economy recovers out of this weakness."
"There is a feeling that in the U.S. that the Fed is prepared to act aggressively, whereas that is not the case in Europe," he said. Economists said statements from some of the key corporates over the past few days have weakened the European stockmarkets and sparked feelings that the central bank could be underestimating some of the downward influences on the economic activity in the region.
"There is some disappointment about the absence of a rate cut from the European Central Bank," said Hannah, highlighting that the relative performance of tech stocks has been the key driver of the euro/dollar cross rates over the past year.
"Although everyone focuses on the weakness of the Nasdaq, they forget to realise that European tech stocks have done even worse. This is part of the reason why the euro is suffering."
Of economic news, Italian consumer prices, including tobacco prices, were up 0.3 pct in February from January and were up 3.0 pct from a year earlier.
"They were just confirmation of preliminary data and won't be very important from a market prospective."
The euro zone inflation data, scheduled for release at 11.00 am, is expected to show a modest rise on both the headline and core measure. "Again not helpful for the single currency because it is a reminder of the dilemma that the ECB faces with again a rise in inflation making it difficult to cut rates."