Dollar remains near low vs euro
LONDON, England (Reuters) -- The dollar held near record lows against the euro on Wednesday after the previous session's subdued inflation data from the United States encouraged the view that U.S. interest rates would remain low for some time.
Dealers say this means the U.S. will face difficulty funding its current account deficit from foreign investments, which usually tend to steer clear of low-yield destinations.
U.S. rates of just one percent compare unfavourably to the euro zone's two percent and make it easy to fund global investors' trades into other higher-yielding currencies, a factor which further undermines the dollar.
"The inflation was low, which argues that the Fed is on hold for a while,'' said Lee Ferridge, head of global currency strategy at Rabobank.
"Hikes are being priced out of the market at the moment. They are still in there broadly but now the first hike is priced in for second quarter rather than March and the market is pushing back its timetable, which doesn't help the dollar.''
By 0840 GMT, the dollar was flat on the day at $1.2317 per euro, compared with all-time lows set on Tuesday beyond $1.2360.
It was also flat against the yen at 107.42, as markets remained wary of potential Bank of Japan intervention to keep the yen's recent rise under control.
The greenback was a touch firmer on the Swiss franc but close to recent 11-year lows against the British pound.
Good data, bad sign
The dollar failed to take advantage of data on Tuesday suggesting the U.S. economy was continuing to gather pace.
U.S. industrial production was up 0.9 percent last month, the biggest gain in four years. Housing starts unexpectedly jumped 4.5 percent to an annual rate of 2.070 million units in November, the fastest pace since February 1984.
But many economists suspect a strong economic rebound will only exacerbate the U.S. current account deficit as U.S. consumers suck in more imports and competition for global capital intensifies.
This tightened focus on the third quarter current account deficit, which shrank more than economists had expected to $135.0 billion but remained at about five percent of U.S. gross domestic product -- a level many deem as unhealthy.
"There are worrying signs there for the dollar in the longer term but I think the market is not going to latch on to them this week,'' said Ferridge.
"It's a pre-Christmas market and it will be more about squaring up than anything else.''
Data on Tuesday also showed U.S. consumer prices dipped 0.2 percent in November and the core rate, which strips out volatile food and energy prices, saw its first decline since December 1982.
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