By Chikako Mogi
TOKYO, May 20 (Reuters) - The dollar eased on Tuesday,
failing to sustain an overnight recovery as worries persisted
about the outlook for the U.S. economy and caution prevailed
ahead of German sentiment and prices data.
A lack of follow-through buying showed the dollar's recovery
had been largely technical after a sell-off late last week on
concerns about U.S. growth, traders said.
The dollar rebounded from Monday's lows after the private
Conference Board's leading indicator index showed a rise of 0.1
percent in April to match the increase in March, which followed
five straight months of declines.
The data was seen supporting views the U.S. economic slump
may be near a bottom and the Federal Reserve's easing cycle was
completed, with the possibility of a rate rise later in 2008.
"Price action is still confined to ranges, reflecting a lack
of confidence among players about which currency to bet on," said
a senior dealer at a Japanese trading firm.
"U.S. data shows signs the economy may be temporarily coming
to a standstill, although downside risks remain in place, putting
the dollar under selling pressure," he said.
The market has turned focus to Germany's ZEW sentiment index
and producer prices index due later on Tuesday for clues about
whether the euro could sustain gains above a recent range,
traders said.
"A stronger-than-expected headline figure in the ZEW index is
likely to send the euro higher, as a bullish tone still remains
for the European single currency after it rose above $1.56 on
Monday, albeit temporarily," said Hiroshi Yoshida, a forex trader
at Shinkin Central Bank.
The euro edged up 0.1 percent to $1.5530 <EUR=>, after rising
to around $1.5630 on Monday before the U.S. leading indicator
report pushed it back below $1.5500.
Traders said that depending on the German figures, the euro
could break out of the recent range between $1.5300 and $1.5600.
The dollar fell 0.4 percent against the yen from late U.S.
trading on Monday to 103.97 yen <JPY=>. The dollar's failure to
hold above 105 yen suggested lingering concerns about the U.S.
economy, with selling by Japanese exporters around 105 yen
capping its upside.
The euro has struggled to keep gains above 162 yen, showing
investors' risk appetite has not recovered fully, traders said.
The euro was down 0.3 percent at 161.45 yen <EURJPY=R>.
A rise in oil and a rebound in gold prices further added to
the dollar's weakness, as the currency typically moves in the
opposite direction to those prices.
INFLATION CONCERNS
The Australian dollar hit a fresh 24-year high against the
U.S. currency, after minutes of the Reserve Bank of Australia's
meeting in May showed it actively considered raising interest
rates as inflation was uncomfortably high. The RBA kept rates
steady. []
The Aussie rose as high as $0.9589 <AUD=D4>.
With oil prices surging to a record above $127 a barrel, the
market was keen to see U.S. producer price data due later in the
day, as inflation concerns continue to weigh on the U.S. dollar.
"The dollar's upside remains heavy as the U.S. economy, while
showing signs of bottoming out, is still very far away from a
full recovery," said a dealer at a Japanese bank. "There are
concerns about the impact of rising inflationary pressures on
such a fragile economy."
After cutting its benchmark interest rate to 2 percent in
April, the Fed hinted that it may pause an easing campaign that
began in mid-September, when the rate stood at 5.25 percent.
The Fed's aggressive rate cuts have undermined the dollar's
appeal against the euro and other high-yielding currencies.
Strong German data could reinforce the case for the European
Central Bank to keep rates steady a while longer rather than
cutting them.
The Bank of Japan kept rates at 0.50 percent as expected on
Tuesday. []
(Additional reporting by Rika Otsuka, Editing by Brent
Kininmont)
