NEW YORK, Oct. 23 (Xinhua) -- The dollar rose against major currencies on Friday as investors chose to be cautious after earning reports and economic data released during the week sent mixed signals on recovery.
With risk sentiment remaining the main driving force in currency trading, the dollar tends to fall against the euro and other higher-yielding currencies on positive economic news, and to rise when investors worry about economic outlook.
A bunch of major U.S. companies reported their third-quarter results in the week. Some encouraging reports, especially those from major banks including Morgan Stanley and Wells Fargo, have boosted risk appetite in financial markets. But there were also companies that reported disappointing earnings or weak fourth quarter outlook.
Union Pacific and BNSF, two major railway operators in U.S., both hurt investors' optimism on Friday by cautioning about operations in the fourth quarter. Railroads are seen as an early indicator of economic activity because of the key role they play in shipping goods to manufacturers and markets.
U.S. housing starts edged up 0.5 percent in September to an annual rate of 590,000, lower than expected, the Commerce Department reported on Tuesday. New building permits, a forwardly looking measure of housing activity, fell 1.2 percent in September. Single-family permits fell 3.0 percent.
August and September's single-family permits readings point to flat or small declines in single-family starts during October and November, analysts said. If single family permits declines repeated in subsequent months, this would be a worrying sign for the housing market as it may indicate builders remain cautious about the recovery.
The Conference Board Leading Economic Index (LEI) for the U.S. increased 1 percent in September, following a 0.4 percent gain in August. It was the six consecutive gain of the index, which intended to forecast economic activities in the future three to six months.
The LEI grew 5.7 percent in the past six months, its highest pace since 1983. "Except for average workweek and building permits, all the leading indicators contributed positively to the index this month," said Ataman Ozyildirim, Economist at the Conference Board.
U.S. initial claims of jobless benefits rose unexpectedly by 11,000 to 531,000 last week, the Labor Department reported on Thursday. The rise may point to a need to temper expectations for a sharp improvement in the decline in non farm payrolls during the month, said analysts of Nomura Economic Research. With unemployment rate at a 26-year high of 9.8 percent, the weak labor market remains a key obstacle to U.S. economic recovery.
Existing home sales climbed 9.4 percent in September to an annualized rate of 5.57 million units, according to the National Association of Realtors. The strong growth was driven mainly by a government tax credit for first time home owners. If the tax credit is not expanded and extended after it expires at the end of November, sales will fall back to a rate of about 5 million during2010, said analysts of Global Insight.
The euro breached the key 1.50 dollars level in Wednesday trading, the first time since August 2008. "This has enormous psychological significance," said Michael Wool folk, a managing director at Bank of New York Mellon Corp. in New York. "It opens the way for further gains above 1.50 dollars, which is overwhelmingly market consensus."
The European single currency touched a 14-month high of 1.5060 dollars on Friday before pulling back to stay just above 1.50 dollars.
Central banks may act to weaken the euro should its gains against the dollar persist, according to UBS AG, the world's second-biggest currency trader.
"If euro-dollar continues to gain in a volatile manner ahead of the November Group of 20 (meeting of finance ministers and central bank governors), action at that meeting can be expected," said Amelia Bourdeau, a currency strategist of UBS.
The pound jumped higher on Wednesday after the Bank of England Governor Mervyn King warned Britons to be prepared for interest rate rises. It tumbled on Friday as a report showed the UK gross domestic product (GDP) fell by a further 0.4 percent in the third quarter. Some analysts said the sterling may give back its recent gains, falling under 1.60 dollars.
Currency traders are closely watching the first estimate of U.S. GDP in the third-quarter to be released next Thursday. Real GDP likely rose by 3.0 percent quarter-to-quarter, helped by the "cash for clunkers" program and slower inventory liquidation, the Nomura Economic Research said.
The euro bought 1.5002 dollars in late Friday New York trading, about 0.7 percent higher than a week ago. The British pound fell 0.3 percent to 1.6311 dollars. The dollar rose 1.4 percent during the past week to 1.0523 Canadian dollars, and fell 0.9 percent to 1.0087 Swiss francs. It rose 1.4 percent to 92.10 Japanese yen.
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