Dollar pushes higher, eyes on inflation data

Dollar up as much as half a percent against the euro

The dollar clawed its way higher on Monday, recovering from almost four-month lows reached late last week on another surprisingly bad round of US economic data.

Against the euro, it was up as much as half a percent, taking back some of the past month's hefty losses. Strategists said country-specific factors allied to rising US bond yields had helped deepen a correction that started late in the European afternoon on Friday.

"We're happy because we sold euros on Friday and we think this move may continue," said Adam Myers, Head of European FX strategy at Credit Agricole in London.

"Short term, I think we go to $1.1350 today and, if the US inflation numbers are better than expected at the end of the week, we could push on to as low as $1.1250."

Before Friday's US data there are final euro zone numbers for April on Tuesday as investors seek clues to the monetary policy balance over the next year.

US industrial production fell for a fifth straight month in April and consumer confidence sagged in early May, quashing any remaining expectations that the US central bank will begin raising rates as early as next month and backing the case that policymakers would hold off until September or December.

"There are a lot of people out there who think the Fed will not now hike this year. I still think the US data will turn around and we'll get a move," Myers said.

By 0740 GMT the euro had fallen to $1.1391, down half a% on the day compared to a Friday peak of $1.1468.

"Higher European bond yields have dragged the euro higher, but from our perspective, it just seems unsustainable," said Mitul Kotecha, head of currency strategy for Asia-Pacific at Barclays in Singapore.

Data from the Commodity Futures Trading Commission released on Friday showed speculators further pared back their bullish dollar bets in the week ended May 12, pushing net long positions down for the seventh straight week to their lowest in nine months.

Against a basket of six major currencies, the dollar added about 0.3% to 93.230, after posting its fifth straight weekly decline. It had reached 92.133 on Thursday.

News of a capital gains tax on New Zealand property investments has added to rate-cut speculation there and made the kiwi the biggest loser among major pairs in recent days. The government on Sunday said that income gained on residential properties sold within two years of purchase would be taxed at up to 33%.

The kiwi dropped 0.75% to $0.7416.