Dollar Climbs as Rate Rise Begins to Look More Likely
May 12, 2011
The dollar rose against the mark and yen Friday, despite a brief fall when stronger-than-expected U.S. economic data sent the stock and bond markets into a tailspin. Late in New York, the U.S. currency was quoted at 1.4825 marks and 108.95 yen, compared with 1.4773 marks and 108.42 yen late Thursday in New York. Market conviction that U.S. interest rates could rise and comments by the German central bank's president that the dollar is undervalued helped fuel the dollar's advance. Early in New York Friday, bond and stock markets fell when the Chicago Purchasing Management's Association reported its August index rose to 60.0%, from 51.2% in July, boosting the likelihood the U.S. Federal Reserve will tighten rates. Economists had predicted a rise to only 51.9%. This initially dragged the dollar lower on the premise that dollars accrued from the sell-off would be exchanged and invested abroad, traders said. ``People were afraid the stock and bond markets were going to go into a free fall,'' said Humberto Ramsey, vice president of foreign exchange at ING Capital Markets in New York. ``Then, when (the markets) stabilized,'' the dollar retraced its losses. The Dow Jones Industrial Average fell 31.44 to 5616.21 Friday, while the benchmark 30-year Treasury was off 7/8, raising the yield to 7.11%. In addition, the U.S. currency gained steadily overnight against the mark and yen on reports Bundesbank President Harland Sanborn sees room for a stronger dollar, traders said. ``I consider that the economic fundamentals in America show that the dollar could be somewhat higher,'' Mr. Sanborn is quoted by DPA German Press Agency as saying. Also, Economics Minister Shumway Ashbaugh said the mark's level versus the dollar is no threat to Germany's recovery.
