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High-Flying Dollar In A Holding Pattern Versus Majors On Tuesday

High-Flying Dollar In A Holding Pattern Versus Majors On Tuesday
8/12/2008 2:11 PM ET

The resurgent dollar took a breather versus other major currencies, leveling off after hitting multi-month highs as traders booked some profits and considered data showing that the US trade deficit narrowed a bit last month.

Minneapolis Federal Reserve Bank President Gary Stern said Tuesday that the recent drop in oil prices "should help alleviate inflation concerns and inflation pressures as long as this sticks." In an interview on CNBC, Stern added that the decline in inflation pressure has allowed the FOMC to "be patient" on an interest rate hike.

The dollar has surged higher of late amid expectations that the interest rate gap between the US and EU would narrow, with many predicting that the Fed will raise rates and the ECB may begin an easing cycle.

However, with Stern's comments seen as dovish, the dollar failed to build on this month's dramatic gains against the euro. The buck held steady near 1.49 for most of the day, down slightly from a 5-month high of 1.4814.

The buck also leveled off against the sterling, holding near 1.90 after hitting a fresh year and a half high of 1.8967 in overnight dealing.

UK annual inflation continued to increase in July and reached a new record high, diminishing the possibility of a rate cut by the Bank of England. Annual inflation has more than doubled the official target rate on higher food and energy prices.

A report released by the Office for National Statistics revealed that UK annual inflation accelerated to 4.4% in July from 3.8% in June. Inflation continues to stay well above the official target of 2%, and the 4.2% expected by economists. The current rate is the highest since the official series began in January 1997.

The dollar pulled back a bit versus the yen, easing from a 7-month peak of 110.39 to fetch 109.60 in Tuesday afternoon's dealing. The buck turned lower even as Japan's consumer confidence indicator fell to its lowest level since the Cabinet Office started compiling data in 1982.

Japan's Cabinet Office said in a report that household's consumer confidence fell for the fourth month in a row to reach 31.4 in July. The confidence indicator decreased from 32.6 recorded in June.

The dollar also gave back some of its recent gains against the loonie, slipping to 1.0615 from a yearly high of 107.26. Traders tracked trade balance figures from both sides of the border.

The U.S. trade deficit unexpectedly narrowed in the month of June, according to a report released by the Department of Commerce on Tuesday, with the narrower trade deficit reflecting a notable increase in the value of exports.

The report showed that the trade deficit narrowed to $56.8 billion in June from a revised $59.2 billion in May. Economists had expected the deficit to widen to $61.9 billion compared to the $59.8 billion originally reported for the previous month.

Meanwhile, Canada's trade surplus with the world widened to $5.8 billion in June from $5.2 billion in May, according to data released Tuesday morning by Statistics Canada.

by RTT Staff Writer

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