Reuters: US Dollar Report: FOREX-Dollar turns higher vs euro, yen after ISM report

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FOREX-Dollar turns higher vs euro, yen after ISM report May 1st 2012, 15:08 Tue May 1, 2012 11:08am EDT * U.S. ISM report turns things around for dollar * RBA surprises markets with 50 bps rate cut, Aussie tumbles * Yen hits 2-1/2-month high vs dollar, but falls By Gertrude Chavez-Dreyfuss NEW YORK, May 1 (Reuters) - The dollar rallied from a one-month low against the euro and a 2-1/2-month trough versus the yen on Tuesday in thin trading, after a key U.S. manufacturing gauge showed factory activity unexpectedly picked up last month, offsetting recent weak economic reports. The U.S. Institute for Supply Management's data was one of the rare instances of positive U.S. economic news in recent weeks and traders used this to rebuild long dollar bets that had grown stale as the outlook for the economy weakened. "The view on the economy has swung from optimism to pessimism of late and this could bring us back to the middle," said Nick Bennenbroek, head of FX strategy for North America at Wells Fargo in New York. "ISM suggests there's no real reason to get too concerned about the path of the U.S. economy at this point." ISM reported that its index of manufacturing activity rose to 54.8 last month from 53.4 in March, exceeding expectations for a reading of 53.0.. In mid-morning New York trading, the euro fell 0.2 percent against the dollar to $1.3215 following the ISM data. Earlier, the euro rose to a four-week high at $1.3277. Light volumes were expected before Thursday's European Central Bank meeting, Friday's U.S. non-farm payrolls report and weekend elections in Greece and France. Traders, however, said the euro's bias remained bullish above $1.32. On Monday, it closed well above $1.32 after six days of trying to end above that key level, which in and of itself is a positive signal. With many of Europe's trading centers closed for the May Day holiday, investors have shifted attention away from the underlying debt issues in Spain and Italy and focused on economic data instead. Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, said: "the euro will struggle...as long as major debt issues in Spain and Italy remain largely unresolved." Against the yen, the dollar recovered from a more than two-month low, rising to session highs at 80.29 yen. It was last at 80.23 yen, up 0.6 percent. The Australian dollar, meanwhile, was the biggest mover of the day, falling sharply after the Reserve Bank of Australia slashed rates by a deeper-than-expected 50 basis points. The Aussie fell 0.9 percent to US$1.0332 and slid to a three-month low near 82 yen. Markets had been caught flat-footed by the RBA move, as markets had been expecting just a 25-basis-point rate cut. The Aussie traded near a five-month low against sterling, which rose above A$1.5700 despite a weaker-than-expected survey of the UK manufacturing sector that pushed the British currency down against the U.S. dollar. "The RBA move means we no longer see a cut in June, but data in the coming months will be of particular focus in the wake of this rather unprecedented cut," said TD Securities in a research note. "We are now calling for another 25-basis point cut in Q3." Link this Share this Digg this Email Reprints

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