Friday, Aug 17, 2012

By Erin McCarthy

The dollar advanced against its main rivals in very light trading Friday, as upbeat U.S. economic data further reduced market expectations for more accommodative policy from the Federal Reserve.

A stream of positive U.S. economic reports this week has dampened investors' bets that the Fed could soon embark on another round of bond-buying known as quantitative easing. Typically, the printing of fresh dollars that comes with such measures has been associated with driving the currency lower.

The University of Michigan's consumer sentiment index and the Conference Board's leading indicators both exceeded economists' forecasts Friday, topping off better-than-expected retail sales and industrial production reports earlier this week. That helped push the dollar to a five-week high against the yen, while the U.S. currency also gained against the euro, Swiss franc and U.K. pound, although in thin trade.

"We're starting to see little bit more of a focus on data through the markets, and I think the dollar is starting to get a bit more of its direction from that data," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Late Friday, the dollar was at Y79.57 against the yen, compared with Y79.35 late Thursday, according to trading system EBS via CQG. The euro traded at $1.2335 from $1.2358, and against the yen, it traded at Y98.13 from Y98.08 Thursday. The pound traded at $1.5689 against the dollar, compared with $1.5733 late Thursday.

The Wall Street Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was trading at 71.796, compared with 71.607 late Thursday.

However, analysts warned not to read too much into Friday's price action, as trading volumes were extremely low ahead of the weekend.

"The biggest driver is probably a sense that the positions that were long risk have made some money, so it's time to take some of that money off the table," said Steven Englander, global head of G10 foreign exchange strategy at Citigroup in New York.

The Australian dollar was another victim of profit-taking as well, falling to a three-week low against the U.S. currency as investors were concerned its gains had become a bit stretched, analysts said. In addition, there's increased speculation that the country's central bank could cut interest rates this year. Australia's Treasury Department said Friday that cutting interest rates would be the best way forward if the strong Australian dollar started to severely harm the broader economy. That put additional pressure on the currency. Against the U.S. currency, the Australian dollar fell about 0.9% to trade at $1.0420 from $1.0512 late Thursday.

Emerging-market currencies also weakened, with the South African rand leading decliners. The rand dived to a two-week low against the dollar as markets reacted to the violent clashes at a platinum mine that have left a total of dozens people dead. Late Friday, the dollar traded at ZAR8.3337, from ZAR8.2165 the previous session.

--James Glynn and Patrick McGroarty contributed to this article

Write to Erin McCarthy at erin.mccarthy@dowjones.com

(END) Dow Jones Newswires

August 17, 2012 17:04 ET (21:04 GMT)