Lower bond yields, consumer data pressure dollar

November 26, 2013

San Francisco (Nov 26)  The dollar fell against the euro and the yen on Tuesday, weighed down by lower U.S. bond yields and data showing U.S. consumer confidence unexpectedly slipped in November.

The euro also gained on speculation euro zone inflation data, due later in the week, could show a slight rise, which would reduce the need for further monetary easing by the European Central Bank.

U.S. consumer confidence fell in November on worries about jobs and earnings prospects, according to a private sector report, but reaction was limited as markets slowed down going into the Thursday U.S. Thanksgiving holiday.

"Disappointing news on U.S. consumers and end-of-month positioning caused the buck to fall behind its rivals," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

"At the margin, the lousy confidence data suggested that consumers might be a bit less willing to spend over the holidays which could hold back growth for an economy driven mostly by retail spending."

The euro rose 0.4 percent to $1.3570, having hit a session high of $1.3574 and triggering stop-loss buy orders above $1.3560. Near-term resistance is at its November 20 high of $1.3577, according to Reuters data.

Forecasts are for November euro zone flash inflation at 0.8 percent, year-on-year, up from 0.7 percent in October. Last month, after a shock drop in inflation, the ECB cut rates to a record low, pushing the euro to a near two-month trough.

The dollar index .DXY, which measures the greenback versus a basket of currencies, fell as low as 80.610, its lowest since November 20. It was last down 0.4 percent at 80.612.

Trade was thin ahead of the Thanksgiving holiday.

The dollar index has largely moved in line with falling U.S. 10-year Treasury yields, which fell after mixed economic data suggested the Federal Reserve could continue its bond-buying program into the new year.

Other data on Tuesday showed permits for future U.S. home construction rose to their highest in nearly 5-1/2 years in October.

Federal Reserve officials have hinted for months that they are looking to exit an $85-billion-per-month asset-buying program, causing global markets to gyrate as investors place bets on when the U.S. central bank will opt to curb its purchases.

Key U.S. labor market data will be released on Friday, December 6. The Fed wants to see the unemployment rate closer to 6.5 percent from its current 7.3 percent. Economists in a Reuters survey see that rate edging down to 7.2 percent in November.

A number of analysts say the Fed is likely to keep benchmark U.S. interest rates lower for longer than previously expected next year to help prop up the economy.

"The dollar's own issues about whether Fed tapering will take place or not make the euro the next best alternative," said Daragh Maher, currency strategist at HSBC. "But the euro is looking rather toppish here."

The dollar fell 0.4 percent to 101.30 yen, pulling back from a six-month high of 101.91 yen set on Monday.

New Japanese investment rules could see some buying of the yen against the dollar and other major currencies by retail investors in the short term, analysts said.

However, in the longer term the yen will remain weak on expectations the Bank of Japan's commitment to an ultra-easy policy will keep it the best funding currency for carry trades, especially against European currencies.

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