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Forex outlook:
The dollar slipped against the Euro on Friday on tame inflation data, but rallied to a four-and-a-half-year high against the yen after the Bank of Japan indicated it was in no hurry to raise interest rates. The dollar is trading around the levels of 1.3404 against the Euro around the levels of 123.47 against the yen 1.9825 against the sterling.
The greenback has reached fresh highs against the yen for the last three days and is on pace for its biggest weekly gain this year. The Euro was up 0.5 percent from late Thursday to $1.3381 following reports showing core consumer prices, which exclude food and energy, rose in May at the slowest pace since March 2006, factory output slowed and consumer confidence dropped more sharply than expected. In intraday trading it was the euros’ biggest one-day gain against the dollar since April.
The data has capped a dollar rally that has been largely fueled by U.S. Treasury yields climbing this week to five-year highs, which outpaced the rise in yields of other major government debt. "Bond yield developments have been driving other markets for the past week or so, and an easing in yields should equate to a softer dollar," said Nick Bennenbroek, head of currency strategy with Wells Fargo in New York.
Over the past month, data has hinted at a rebound in U.S. growth, and traders of interest rate futures priced out expectations of an interest rate cut by the Federal Reserve. In March, dealers priced in nearly three quarters of a percent in cuts. Despite Friday's pullback in the dollar, many analysts anticipated strength in the currency next week. "With a marginal improvement in the U.S. interest rate picture, we will need to get back below 5 percent on the 10-year (Treasury note) before people will think the dollar will get weaker," said Joe McCarthy, head of foreign exchange trading at ING Capital Markets in New York. Against the yen, the dollar rose to a high of 123.66 yen before surrendering some gains to trade at 123.43, 0.4 percent above its level late Thursday.
Japan's interest rates, which at 0.5 percent are the lowest in the developed world, continue to weigh on the yen, especially after the Japanese central bank ended a policy meeting with no clear signals of a forthcoming rate increase. The Euro touched a record high of 165.27 yen, according to electronic platform The Euro later surrendered some gains to trade at 165.14 yen, still up 1 percent on the day.
Gold: U.S. gold futures steadied at higher levels after tossing around on a raft of U.S. economic data released Friday, all giving conflicting readings on the inflationary outlook, traders said. With a slew of gold investors holding short positions, prices nudge up on any bullish piece of news as they cover those positions, one added. "Michigan Sentiment was not bullish for us. It was lower than expected. But, the CPI, which was up at a year and a half high, was bullish for us. So that's why we're seesawing," said another gold broker. "There have been a lot of shorts in this market so it's sensitive to any bullish indicators and that initial (CPI) indicator was bullish enough to take us higher," he added.
Crude Oil: U.S. crude oil futures ended up Friday after hitting fresh nine-month highs, getting a lift from gasoline futures which surged for the third straight day on supply concerns amid low refinery runs. "This is a follow-through on Thursday's firmness ... this week has been positive for prices as refinery utilization is down and energy futures are very strong, technically," said a NYMEX floor broker. "The latest inflation numbers are good and the situation in Palestine is something to think about," the broker added. Crude Oil future contract is trading around the levels of 68.000$ per barrel.
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