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Economy boosts dollar
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July 17, 2000: 10:32 a.m. ET
U.S. dollar up as slower growth, tame inflation indicate soft landing
By Gordon Platt
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NEW YORK (CNNfn) - Growing indications that the U.S. economy will land gracefully, and not with a thud, are boosting the dollar, currency traders and analysts said.
"The dollar has strengthened even as Federal Reserve tightening expectations have been scaled back," said Bob Lynch, currency strategist at Paribas.
 "Slower growth and tame inflation are certainly more supportive of the dollar than a hard-landing scenario would be," Lynch said.
June retail sales were strong, and May sales were revised upward to show a rise instead of a decline, he noted. "Consumer spending remains healthy," Lynch said.
At the same time, the decline of 0.1 percent in the core rate (excluding food and energy) of the Producer Price Index in June "reinforced thinking that the Fed won't raise rates at its meeting in August," Lynch said.
Market reaction was relatively muted to the barrage of U.S. economic data released Friday, said Bob Sinche, head of global currency strategy at Citibank.
"The markets were hoping for more clear-cut evidence of what is happening with the economy," Sinche said. "They will have to wait, because the Fed wants more data," he said.
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Analysts said the report on second-quarter gross domestic product, due later this month, and the July employment report in early August will be critical pieces of evidence that Fed policy makers will consider at their next meeting, Aug. 22.
Signs of the Fed's thinking could emerge as early as Thursday, when Chairman Alan Greenspan testifies on monetary policy to Congress.
Meanwhile, the Fed's U.S. dollar index has risen sharply and is nearing the 108.60 high in the 55-day moving average reached in early January, said
Sinche of Citibank.
"The story is not so much a strong dollar as it is a weak yen," he said.
The Bank of Japan decided at its regular meeting Monday to hold to its zero interest rate policy for a while longer. The central bank said it needed more time to consider the implications of the Sogo bankruptcy and was continuing to closely monitor changing conditions in the Japanese economy.
"There is no question, however, that the bank was feeling a great deal of political pressure put upon it by the government," said Dennis Gartman, editor and publisher of The Gartman Letter.
"We think that the BOJ has erred very badly in making this decision," he said. "It has bowed to governmental pressure, and in so doing has abrogated its responsibility to the currency."
Analysts said the BOJ has been preparing the markets for the past two months for a rate increase and that to not follow through risks a loss of credibility.
The yen was trading early Monday at 107.25 to the dollar, slightly stronger than its 107.90 close in New York on Friday.
Euro immune to good news?
Meanwhile, analysts said the cyclical environment continues to improve in Euroland, with growth expected to reach 4 percent this year, but the euro seems immune to good news.
The closely watched Ifo Institute data on German business sentiment, due Wednesday, could support the euro if they are strong. "But last month, the
Ifo index rose more than expected, and the euro got no benefit,' said Lynch of Paribas.
The euro edged up to 93.86 U.S. cents early Monday from 93.50 cents Friday, but analysts said the euro is likely to remain vulnerable against the dollar.
Improving Euroland fundamentals have helped the euro to build a bottom in the low 90-cent range, but the recovery of the currency likely will be gradual, analysts at Chase Securities said.
They said the euro is likely to experience a lengthy bottom-building process and could test levels around 91 cents.
In order for the euro to benefit from improved fundamentals, analysts said, fund managers and corporate strategists must find a reason to buy European assets.
Meanwhile, the decision by UBS of Switzerland to purchase U.S. securities firm PaineWebber for $11.8 billion, of which half is expected to be paid in cash, will provide support for the dollar against the Swiss franc, analysts said. 
-- Gordon Platt is a freelance columnist writing about currency markets for CNNfn.com
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