* Dollar advances versus a basket of major currencies
* Talk of European central bank diversifying out of euros
* U.S. output at fastest pace since April, CPI flat
By Wanfeng Zhou
NEW YORK, Aug 15 (Reuters) – The dollar rose to a one-month
high against the yen and advanced against the euro on Wednesday,
buoyed by rising Treasury yields and diminishing expectations of
further monetary easing from the Federal Reserve.
U.S. industrial output expanded last month at the fastest
pace since April, while home-builder sentiment in August hit its
highest level in more than five years, data showed on Wednesday.
The reports followed Tuesday’s data showing U.S. retail
sales rose in July for the first time in four months, leading
analysts to conclude the slowdown in the world’s largest economy
during the second quarter will prove temporary.
“While one or two data points alone will not meaningfully
alter the outlook for Fed monetary policy, additional upside
surprises to U.S. data over the coming weeks would indeed see
investors scale back expectations for additional Fed easing and
likely see the dollar gain more ground against its major
counterparts,” said Omer Esiner, chief analyst at Commonwealth
Foreign Exchange in Washington.
The dollar index, which measures the value of the
greenback versus a basket of currencies, rose 0.2 percent to
82.653.
The dollar’s gains saw the euro come under fresh pressure,
and traders also cited talk of euro selling by a European
central bank that has been diversifying its reserves into
Swedish crowns and British pounds.
The euro fell 0.3 percent against the dollar to
$1.2285. It also dropped 0.1 percent to 96.91 yen.
But volumes were low, exaggerating currency moves with
investors wary of selling the euro aggressively given the
prospect of the European Central Bank restarting its bond-buying
program to curb high Spanish and Italian borrowing costs.
Greek Prime Minister Antonis Samaras next week will hold his
first meetings with euro zone leaders since taking office.
Samaras will strive to assure them he will honor a pledge for
more austerity and gauge whether they would grant him more time
to pull it off.
The dollar gained 0.2 percent to 78.86 yen, having
risen to a one-month high of 79.04 yen earlier on Reuters data.
The pair has been particularly sensitive to moves in U.S.
Treasuries, with rising bond yields increasing the appeal of
dollar-denominated assets.
The benchmark 10-year U.S. Treasury note was down 21/32,
with the yield at 1.803 percent.
Traders reported offers above 79 yen and chartists at
Commerzbank said if the dollar manages to close above its
200-day moving average of around 79.19 yen, it may rally to its
June 25 high of 80.63 yen.
Some analysts and traders said dollar gains may be limited
by the potential for fund repatriation by Japanese institutional
investors during August.
August typically sees a large number of bond redemptions in
U.S. Treasuries as well as coupon payments, and Japanese
investors holding Treasuries might sell the dollar against the
yen to bring home some of the proceeds.
The dollar had been under pressure from growing speculation
that the Fed could launch another round of bond-buying, or
quantitative easing, as early as September. But analysts say if
U.S. data show that the economy is improving, the need for
further stimulus would recede, helping the dollar to bounce.
Earlier, it briefly erased gains versus the yen after data
showed a gauge of manufacturing in New York state unexpectedly
contracted in August for the first time since October 2011 while
separate data showed U.S. consumer prices were unchanged in July
for a second straight month.
