(Adds comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, May 1 (Reuters) - The dollar climbed to a
five-week peak against the euro and a seven-week high versus a
major currency basket on Thursday as data indicated a generally
stable economy, suggesting the Federal Reserve's monetary
easing could slow.
Investors focused on the positive aspects of the U.S.
spending and core inflation data as well as a key manufacturing
survey for April and shrugged off higher-than-expected U.S.
initial jobless claims.
"The ISM data shows manufacturing is not deteriorating
further and as long as we keep getting status-quo,
non-deteriorating numbers the market will buy the dollar.
That's the psychology of the currency market right now," said
Joseph Trevisani, chief market analyst, at FX Solutions in
Saddle River, New Jersey.
The Institute for Supply Management said its index of
national factory activity was unchanged in April from March at
48.6, indicating that manufacturing contracted for the third
straight month but not as much as economists had expected. For
story, click on [].
The euro fell to a five-week low against the dollar to
$1.5438, according to Reuters data, but traded back up to
$1.5457, down 1 percent. Traders said markets earlier ran
stop-losses in euro/dollar below $1.5490, accelerating the
currency's decline. Most market participants now expect a lower
trading range between $1.52-$1.57 after the euro rose to a
record peak above $1.60 last week.
"Nobody can come up with a good reason to buy the euro
right now. Euro-zone growth probably won't return to 2.5
percent and the ECB is not likely to raise interest rates,"
Trevisani said, referring to the European Central Bank.
Benchmark euro zone interest rates are currently at 4 percent.
In contrast, a series of interest rate cuts by the Fed has
helped shore up the ailing U.S. economy and it's likely that
the central bank will not ease further, he added.
The Fed cut rates by 25 basis points to 2 percent on
Wednesday, as most had expected.
Against a basket of currencies, the dollar rose nearly 1
percent to 73.305, after earlier hitting a peak of 73.328, the
highest level since March 11.
Earlier in the session, the government released data on the
the Fed's preferred gauge of inflation, the core personal
consumption expenditures, or PCE, price index, which was higher
than market expectations, while U.S. personal spending rose
twice as much as forecast despite a cooling economy.
The data blunted the sting of the U.S. jobless claims
number and backed a growing view that the U.S. economy is in
far better shape than many people had thought.
"We had pretty bad numbers out of the U.S., but they were
not terrible," said Rafael Martorell, chief FX dealer at BNP
Paribas in New York.
"So that's helping the dollar against the euro. And when
the euro is down the G7 is happy because oil comes down and all
other commodities, and the bubble we're having in that sector
is slowly coming off." he added.
Markets have shifted their focus from the Fed's failure to
signal a definitive end to rate cuts to worries about the
health of the euro-zone economy.
A run of weak sentiment data from the euro zone has stoked
expectations that the ECB may soon tone down its hawkish
rhetoric and gradually embark on its own monetary easing.
The Fed statement on Wednesday, meanwhile, signaled that
its next move would depend on developments in financial markets
and the economy. The statement disappointed some investors who
had expected a clear sign that the Fed was done with cutting
rates after dishing out 325 basis points of cuts since
mid-September.
Against the yen, the dollar edged up to 104.00 <JPY=>. The
dollar rose 1.2 percent against the Swiss franc to 1.0479
<CHF=> after hitting a two-month high at 1.0499, while sterling
fell 0.6 percent to $1.9738 <GBP=>.
(Additional reporting by Steven C. Johnson; Editing by Leslie
Adler)
