Dollar recovers

The dollar firmed on Wednesday after US consumer spending in November exceeded expectations, but sentiment on the currency remained predominantly bearish given expectations of a slowdown in 2007.
A stronger-than-expected US retail sales report in November, showing the largest rise in four months, spurred hefty dollar bids early in the session, although afternoon buying of the greenback was more technically driven.
"We still seem to get some upside surprise to some of the data like the retail sales data today and the employment report last Friday," said Steven Butler, director of foreign exchange trading at Scotia Capital in Toronto.
"There's still some renewed optimism that things are not as bad as they seem on the outside in the US, so we're seeing some rally in the dollar. But overall sentiment is still negative and the rally would be hard to sustain," he added.
The euro was down 0.5 percent from Tuesday against the dollar at $1.3214, having hit a session low of $1.3196. But this was well off the $1.3129 trough established on Monday in the wake of last week's strong US employment data for November.
The dollar came under broad-based pressure on Tuesday when the Federal Reserve left interest rates steady at 5.25 percent. Many interpreted the Fed's post-meeting statement as reflecting greater concern about the state of the housing market, suggesting a Fed rate rise is less likely. However, the upbeat report on consumer spending was enough to stave off the bears for now.
Yields on benchmark 10-year notes, which rose to 4.57 percent from 4.49 percent late on Tuesday after the strong retail sales data, also lifted the dollar, some analysts said. "Looking through all the noise, it's notable that the dollar hasn't been able to strengthen more," said Daniel Katzive, foreign exchange strategist at UBS Securities in Stamford, Connecticut.
"This suggests people still remain focused on the dollar's structural risks," he said. A record high US trade deficit with China would be one of the subjects for discussion when Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson meet Chinese officials for trade talks later this week.
Against the yen, the dollar rose to a three-week high at 117.65 yen, according to electronic trading platform EBS. The pair last traded at 117.51, up 0.6 percent. Sterling was down 0.3 percent at $1.9660, well off a session high at $1.9729 hit after robust UK employment data.
The worst performer of the day against the dollar was the Norwegian crown, which shed 0.7 percent of its value a day after the Norges Bank raised interest rates but suggested subsequent increases would be only gradual. The crown was last quoted at 6.1697 to the dollar. The interest rate futures market is pricing in an 18 percent chance of a rate cut in the first quarter of 2007, down from about 30 percent before the data.