The Wall Street Journal-20080216-Split Decision for Dollar on Week

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Split Decision for Dollar on Week

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Despite weak U.S. data and lower stock markets, the dollar weakened only slightly against its rivals, suggesting currency investors are starting to look beyond the bad news on the economy.

Reports on U.S. consumer sentiment and manufacturing activity in the New York region came in lower than expected. The manufacturing report from the Federal Reserve Bank of New York showed a decline in the index for the first time since May 2005.

The dollar slipped against the yen and declined to a one-week low after the data were released. But the losses weren't steep, and later in the session the greenback rebounded as investors got ready for a three-day weekend in the U.S. "Trades benefiting from risk aversion have been abandoned for now," said currency analysts at BNP Paribas in a research note. "Markets have become more optimistic on the prospect of a V-shaped economic rebound."

The dollar fell 1.1% for the week on the euro, but rose slightly on the yen, continuing a pattern. But the dollar is down against both for the year to date.

The euro also rebounded from earlier losses against the yen. BNP analysts said they see the dollar heading toward 110 yen and the euro toward 162 yen over the "next few weeks."

Late Friday in New York, the euro was at $1.4679, up from $1.4637 late Thursday, while the dollar was at 107.82 yen, off from 107.98 yen. The euro was at 158.26 yen, from 158.04 yen Thursday. The British pound was at $1.9606, down from $1.9684 Thursday; the dollar was at 1.0939 Swiss francs, from 1.0982 francs Thursday.

Part of the reason investors were unwilling to sell the dollar too much based on the University of Michigan consumer survey and New York Fed data is that another report out Friday suggested long-term prospects for the greenback remain solid.

The Treasury International Capital report showed that net foreign acquisitions of long-term U.S. securities, excluding nonmarket flows, was $56.5 billion in December after purchases of $90.9 billion in November.

The monthly figure declined, but analysts said the data from the Treasury Department still is positive overall. They noted a net foreign capital inflow to the U.S. -- rather than an outflow -- remains the norm, and foreign purchases of U.S. equities jumped.

This suggests foreigners still have plenty of confidence in the U.S. despite the economic problems. The data also indicated that China isn't selling off its huge dollar holdings, despite worries to the contrary.

The dollar showed strength against Canada's currency Friday after weak data there suggested its economy is feeling the effects of the U.S. slowdown.

Statistics Canada on Friday reported that manufacturing shipments declined 3.4% to 48.63 billion Canadian dollars ($48.61 billion) after the previous month's 1% increase.

The data also point to more interest-rate cuts by the Bank of Canada in the coming months, analysts said.

Late Friday, the U.S. currency was at 1.0075 Canadian dollars, from C$1.0004 Thursday.