Dollar Gains Ground On Stronger US Economic Data

NEW YORK (Dow Jones)--The dollar's rally picked up steam Wednesday morning in New York, hitting a two-week high against the yen, after stronger U.S. economic data fueled bets the Federal Reserve will tighten monetary policy sooner than previously anticipated.
The dollar jumped to the highest level since Feb. 3 against the yen, rising as high as Y91.12. Demand for the greenback pushed the euro well below the $1.37 level, on the back of data that showed that U.S. housing starts in January climbed to the strongest level since July 2009, while industrial production beat analysts' estimates.
"The data show that the economy will rebound in the U.S. before it does in Europe and Japan," said Sebastien Galy, currency strategist at BNP Paribas in New York. Based on that stronger U.S. economic data, "the market is also making a bet that the Fed will tighten [monetary] policy before the [central banks] in Europe and Japan."
Rising U.S. Treasury yields, in the wake of the economic data, is also adding more pressure on the yen and the euro, making dollar-denominated assets more attractive, traders said. Yields on the 10-year U.S. Treasury notes rose 3.8 basis points to yield 3.706%.
Wednesday morning in New York, the euro was at $1.3707 from $1.3772 late Tuesday, according to EBS via CQG. The dollar was at Y90.98 from Y90.11, while the euro was at Y124.70 from Y124.08. The U.K. pound was at $1.5780 from $1.5787. The dollar was at CHF1.0708 from CHF1.0660.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 79.952 from 79.630.
U.S. January industrial production came in slightly better than expected as the factory sector paces the recovery. Production last month increased by 0.9%, with manufacturing up 1.0%. Economists had expected a 0.8% increase. December output was revised to 0.7%; originally, production was reported rising 0.6%.
Earlier, data showed U.S. housing starts climbed 2.8% to a seasonally adjusted 591,000 annual rate compared to the prior month, the Commerce Department said Wednesday. Economists surveyed by Dow Jones Newswires forecast a 5.9% increase in January housing starts, to an annual rate of 590,000. The pace of 591,000 was the strongest since July 2009.
Investors are now eyeing the release of the minutes from the last Federal Open Market Committee meeting, scheduled to be released at 2 p.m. EST.
The dissent vote in the last FOMC's rate-setting meeting "will be the focus" of investors' attention, said Kasper Kirkegaard, a currency analyst at Danske Bank in Copenhagen. However, Kirkegaard said it was unlikely to be "a market mover" event.
"We've already seen [Federal Reserve's chairman] Ben Bernanke outlining some of the Fed's thoughts about exit strategy, hence we do not expect many surprises from the minutes," he said.
Meanwhile, the Bank of England's Monetary Policy Committee was unanimous in its decision to suspend its bond-buying program in February, but for some members it was a close call, meeting minutes released Wednesday showed.
The MPC judged that "a case could be made" for extending its GBP200 billion quantitative easing policy of buying gilts with freshly created central bank money, and said it could extend it in future, if conditions warranted it.

Canada Morning 

The Canadian dollar was slightly lower Wednesday morning after stronger U.S. economic data triggered demand for the greenback.
"We do not think for one moment that the recent uncertainties that have spooked risk assets have disappeared permanently, but, for the moment, the lull in risk aversion should allow the Canadian dollar more room to explore the lower end of the recent trading range against the dollar," TD Securities strategists wrote in a note to clients. "The low 1.04 area has proven to be a source of support for the U.S. dollar in previous phases of softness."