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US Dollar Paces toward Weekly Gain

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US Dollar Paces toward Weekly Gain

The US dollar advanced against a basket of currencies Friday as escalating conflict in Iraq underpinned demand for the global safe haven.

The US dollar index, a broad performance measure of the greenback’s performance against six major currencies, appreciated 0.15 percent to 80.70. The index is on pace for a weekly gain of more than 0.3 percent.

Higher US Treasury yields kept the greenback buoyed this week amid disappointing economic data releases. On Friday higher US bond yields kept the dollar elevated, as investors absorbed disappointing producer inflation and consumer sentiment data.

US producer prices unexpectedly declined in May, a sign inflationary pressures remained tame. Producer prices declined 0.2 percent in May after a gain of 0.6 percent the prior month that was also the largest in one-and-a-half years. Economists forecast a monthly gain of 0.1 percent.

Year-on-year, producer price inflation fell from 2.4 percent to 2 percent in May.

So-called core inflation, which excludes products tied to food and energy, declined 0.1 percent, following a 0.5 percent advance in April.

Compared to the previous 12 months, core producer prices were up 2 percent.

In a separate report, US consumer sentiment unexpectedly declined to a three-month low in June, partly due to declining consumer expectations.

The consumer sentiment index dipped from 81.9 to 81.2 in June, Reuters and the University of Michigan reported today.

One-year inflation expectations fell from 3.3 percent to 3 percent in June, while the long-term inflation outlook rose from 2.8 percent to 2.9 percent.

Disappointing economic figures were offset by deepening conflict in Iraq, which boosted demand for the safe-haven greenback. Militant groups affiliated with al-Qaeda captured two cities in Iraq – Fallujah and Mosul – prompting the United States to issue a stern warning that military intervention may be in the cards.

The US dollar advanced 0.37 percent against the Japanese yen, sending the USDJPY exchange rate to 102.05. The pair is supported at 101.48. The pair is currently testing initial resistance at 102.04.

The Bank of Japan kept monetary policy unchanged today, offering a more optimistic view of export growth. BOJ Governor Haruhiko Kuroda appeared confident the economy was on pace to meet it inflation target in 2015 without the need for added stimulus.

The dollar also strengthened against the euro. The EURUSD declined 0.19 percent to 1.3526. Initial support is located at 1.3518 and key resistance is at 1.3580.

The dollar was weaker against the British pound, which advanced 0.17 percent. The GBPUSD was trading at 1.6957, eying the 1.7003 resistance.

The pound bulls were still reacting to upbeat UK employment data. UK unemployment declined 0.2 percentage point to 6.6 percent in the three months through April, the Office for National Statistics reported Wednesday.

A separate report released today by the European Commission said UK employment increased 0.9 percent in the first quarter. Year-on-year, UK employment was up 2.5 percent.

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