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Thursday, 26 November 2015

Dollar rises on manufacturing data, holds off euro rebound



The dollar rose on Wednesday, holding near multi-month highs against a basket of currencies as the latest batch of U.S. economic data continued to support views the Federal Reserve will raise interest rates in December.

Manufacturing output rose well above economists' expectations in October and a gauge of U.S. business investment plans surged. A survey of factories also showed a rise in new orders last month, the Commerce Department said.

The data turned the dollar upward against the yen JPY=, which rallied overnight on heightened tensions between Russia and Turkey. The dollar touched a session high against the yen after the data; it last traded at 122.73 yen.

The euro rebounded in late U.S. trading, showing some short-term technical resistance at $1.06.

The continental currency fell as low as $1.05785 in early morning trading, hitting a seven-month low against the dollar, after news that the European Central Bank is considering policy options such as staggered charges on banks hoarding cash or buying more debt. The ECB holds a policy meeting on Dec. 3.

The euro's recovery was largely the result of low-volume trading and traders cashing in already-held bets against the currency, analysts said.

"We did see some extended short positions on the euro coming in today, so they might have been covered a little bit there," said Thierry Wizman, global interest rates and currencies strategist at Macquarie Limited in New York. "We think that the short positioning on the euro is a bit extended here in part because everyone expects the ECB to take some measures next week to ease monetary policy in the euro area further."

The euro was last down 0.2 percent at $1.0617.

Stephen Jen, who runs London-based hedge fund SLJ Macro Partners, said he believed the ECB would cut the deposit rate by at least 30 basis points to -0.5 percent.

The consensus from a Reuters poll is that the ECB will cut the rate to -0.30 percent from -0.20 percent currently. [ECB/INT]

Policymakers are discussing a split-level rate - a contested step that would impose a higher charge on banks depending on the amount they deposit with the ECB - to soften the impact of any further deposit rate cut on banks.

"Draghi said he wanted to accelerate the recovery in inflation," Jen said, referring to ECB President Mario Draghi. "That could not possibly be achieved by cutting the rate by 0.1 percentage point, as the market was expecting."

Reference: Reuters

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