NEW YORK, Sept 30 (Reuters) -
The dollar was lower against most major currencies on Friday, except for the Japanese yen, as end-of-quarter book squaring and profit taking on the rally this week offset a rise in U.S. Treasury bond yields.
A fall in U.S. August consumer income and spending and a tumble in September consumer confidence also weighed on the dollar, despite a rise in September Midwest business activity in data published Friday.
"It's maybe slightly negative for the dollar," said Steven Englander, chief currency strategist, Americas, with Barclays Capital in New York, of the University of Michigan consumer sentiment index and the earlier reported fall in U.S. spending.
"The market's still focused on why the dollar can't sustain a break below $1.20 in the euro. The market's a little frustrated and may be thinking about going in the other direction and seeing how much (euro) upside there is," Englander added.
Early afternoon, the euro traded at $1.2042 according to Reuters data, up 0.1 percent compared with late Thursday. The euro had hit a two-month low of $1.1976 earlier this week.
U.S. consumer spending dropped a larger-than-expected 0.5 percent in August, the biggest fall since November 2001. Consumer sentiment was gloomy as well, with the University of Michigan final consumer sentiment index for September registering at 76.9, below economists' forecasts for 78.0.
The Chicago Purchasing Management Index rose to 60.5 in September from 49.2 in August, well above forecasts for 51.0.
"Chicago PMI came out stronger than expected and we also saw the prices paid index rise," said George Davis, chief foreign exchange technical analyst with RBC Capital Markets in Toronto.
"Given the stronger-than-expected headline number and the rise in the prices paid component, that would reaffirm the measured stance (of rate increases) currently held by the Fed and likely would be supportive for the U.S. dollar over the short run today," Davis said.
The prospect of higher U.S. interest rates tends to boost the appeal of dollar-denominated deposits to foreign investors.
But the dollar's boost from the Chicago report was short-lived. At one point the U.S. currency dropped sharply to 14-year lows against the Canadian currency, around C$1.1589 according to Reuters data.
Early afternoon in New York, the U.S. dollar was trading at C$1.1607, down 0.9 percent.
The Canadian dollar's surge to 14-year highs "is part of the recent trend," said Shaun Osborne, chief currency strategist at Scotia Capital in Toronto. "Commodities are strong and while the economic numbers this week were not exactly stellar, the BOC (Bank of Canada) is still in a tightening mode," he said.
The economy of oil exporter Canada stands to be a main beneficiary of high crude prices and disruptions to U.S. production and refining capacity caused by recent hurricanes.
Against the yen the dollar was at 113.45 yen, up 0.3 percent from late Thursday.
Figures released on Friday showed Japan's nationwide core consumer price index (CPI) was down 0.1 percent in August from a year earlier, pointing to mild deflation persisting in Japan.
"Chicago PMI might be dismissed because it is a volatile report, but there was a positive dollar reaction. We will have to see how long this lasts," said Grant Wilson, senior foreign exchange trader with Mellon Financial, in Pittsburgh.
However, consumer sentiment figures that were slightly lower than expected weighed on the dollar somewhat, he said.
Earlier on Friday, the dollar found fleeting support from a higher-than-expected reading of the U.S. August core PCE price index, the Federal Reserve's favored measure of inflation.
That might hint the Fed would continue its campaign of gradually raising interest rates to contain price pressures, but some traders focused more on the slip in spending.
The U.S. core personal consumption expenditure price index for August rose 0.2 percent, above analysts' median forecast for a 0.1 percent rise.
The data on personal income, consumer spending and the core PCE price index in August were mostly gathered before Hurricane Katrina hit on Aug. 29.
The New York NAPM business conditions index rose in September to 349.7 from 345.4 in August but the dollar hardly budged after that report.
posted by rahul @ 12:02 PM
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