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February 18, 2007

Dollar ends flat

 
February 18, 2007

NEW YORK: The dollar steadied on Friday, holding little changed against the euro and the yen, but still set to post its steepest weekly decline in two months against a basket of major currencies.

The greenback fell in early US trade after data showed a sharp decline in US housing starts last month, but later recovered some ground as trading activity wound down ahead of along weekend in the United States.

A spate of weak US economic reports this week, capped on Friday by a slide in a benchmark gauge of consumer confidence, has advanced the case for the Federal Reserve to cut interest rates later this year.

“We’re seeing that US data is beginning to weaken,” said Kathy Lien, chief strategist. “It’s confirming the Fed’s indication to us that we need to see more growth and more signs of inflation before raising rates.”

The dollar was up about 0.05 per cent at 119.20 yen in late New York trade, recovering from a one-month low of 118.98 hit on electronic trading platform EBS after a government report showed the pace of US housing construction posted its sharpest monthly decline since October.

The euro was a touch weaker on the day at $1.3135, below a six-week high of $1.3173 hit on Thursday.

In a lacklustre session, one notable gainer was the New Zealand dollar, which rose 0.6 per cent to $0.6980. That brought the kiwi dollar’s gains to more than 2 per cent on the week, with the currency supported by continued expectations that New Zealand’s central bank will raise interest rates next month.

The dollar was still down about 2 per cent against the yen on the week and looked set to record its biggest one-week drop since May against the Japanese currency.

The yen rallied this week after data that showed Japan’s economy grew at an unexpectedly brisk pace in the fourth-quarter. The numbers boosted expectations that the Bank of Japan will raise interest rates a quarter percentage point next week from

0.25 per cent at present.

Analysts see a roughly 50/50 chance that the BoJ will raise rates at its meeting on Feb 20-21, a Reuters poll shows.

The dollar index, which measures the dollar’s value against a basket of the currencies of six major trading partners, was barely changed on the day.

The index fell 1 per cent over the week, its largest weekly decline since early December when it posted a weekly fall of almost 1.5 per cent.

Data showing weak manufacturing output, a wider trade deficit in December and a shortage of capital inflows that month to finance it have all weighed on the dollar this week.