Markets: News  

Dollar gains after consumer sentiment

SAN FRANCISCO (MarketWatch) -- The dollar gained against the euro and other major currencies on Friday after a report showed U.S. consumer sentiment improved.

During European trading hours, the euro notched its highest level against the Japanese yen since early June on growing expectations that European leaders will move to save the shared-currency project.

The ICE dollar index (DXY) , a measure of the U.S. unit against a basket of six major currencies, rose to 82.593, from 82.392 in North American trade late Thursday.

The euro (EURUSD) changed hands at $1.2327,down from $1.2356.

Against the yen, the euro (EURJPY) traded at ¥98.08, up from ¥97.66. The euro rose as high as ¥98.41, its highest level since June 7.

The greenback gained after the University of Michigan-Thomson Reuters' preliminary August reading increased to 73.6, the highest level since May, from a final July reading of 72.3.

Economists polled by MarketWatch had expected the index to decline to 71.8 in August. See story on UMich.

Economists at RDQ Economics noted details of the report showing a rise in consumers's assessments of current conditions and medium-term inflation expectations that could reduce the Federal Reserve's reasoning to engage in a potential third massive round of bond buying, which tends to devalue a country's currency.

"This suggests that Fed officials should not read too much into the moderation in headline inflation in recent months and adds to the case against further monetary policy easing," RDQ economists wrote in emailed comments.

On Thursday, German Chancellor Angela Merkel said Germany is committed to maintaining the euro and appeared to back European Central Bank President Mario Draghi's proposal for the ECB to resume buying government bonds in the secondary market for countries that agree to tap the euro-zone rescue fund and accept strict conditions on fiscal policy. Read more on Merkel, euro.

"Although the euro has been fairly resilient this week and the peripheral bond market has recovered well…, we are still missing a major piece of the jigsaw puzzle -- the ECB has not yet clarified its position and is not yet acting as the lender of last resort," said Kathleen Brooks, research director at Forex.com in London.

Spain appears reluctant to give up its budget sovereignty and is unlikely to tap the rescue funds as long as bond yields are falling, which in turn makes it less likely the ECB will step in, she said.

"The FX market may be buying euro, but not in huge quantities hence the bulls don't seem to have the puff to get EURUSD above $1.2450 anytime soon now that it is increasingly unlikely that the Federal Reserve will embark on more [quantitative easing] at its September meeting," Brooks said, in a note.

For the week, the euro added 0.3% versus the greenback, its first week up in three.

The dollar index is little changed from last Friday, with a big jump versus the yen offsetting the move against the euro and keeping the greenback in a tight range for the month.

Against the yen, the dollar (USDJPY) bought ¥79.57, up from ¥79.37 late Thursday.

The dollar has gained 1.6% versus the yen this week, after slipping modestly in the last prior two.

The British pound (GBPUSD) bought $1.5692, down from $1.5732.

The Australian dollar (AUDUSD) fell by the most in almost four weeks -- to $1.0421 versus $1.0497 on Thursday. See story on Australian dollar.