Dollar gains respite after inflation data improves

Firmer US inflation data and a pick-up in consumer confidence revived the dollar at the end of a week that raised doubts among some investors about the strength of the currency's bull run.

Labour Department figures showed a 0.2 per cent rise in core consumer prices in March - stripping out fuel and food. That pushed the annual core inflation rate up from 1.7 per cent in February to 1.8 per cent.

A University of Michigan index, also published on Friday, showed a better than expected rise in consumer confidence, up from 93 in March to 95.9.

The dollar responded by pushing back against the euro, which on Friday had reached a weekly high of $108.48, but eased to $1.0771 in light of the inflation and consumer confidence data.

Steven Englander, currency strategist at Citigoup, was unimpressed. "The dollar has been on the back foot and recovered a little bit. But the economic recovery is a bit more important than a pip here and there on the inflation rate," he said.

Mr Englander was more interested in March data showing that the end of the West Coast labour dispute has been followed by a record number of inbound containers. That could revive retail sales and manufacturing assembly lines, he said.

Data published this week showing poor US retail sales and industrial activity have shredded the nerves of some dollar bulls, and delayed expectations of the US Federal Reserve raising interest rates.

The dollar index, which began the week touching the psychologically important 100 mark, had slipped to just above 97.

Although the index was higher as Friday's US session unfolded, there was no escaping the fact that the dollar has had a bruising week.

It has come under pressure from among others oil-related currencies, enjoying a welcome boost on the back of a rally in crude prices.

There were strong gains for the Norwegian krone and the Canadian dollar, up 3.3 per cent on its neighbour over the week and also helped by the Bank of Canada playing down expectations of a rate cut.

But the rouble's strong bounce had all but vanished on Friday as Russia's ailing currency lost 5 per cent against the dollar over expectations of impending rate cuts.

Mr Englander warned that oil-related currencies were helped by the timing of the oil rally coinciding with the dollar's weakness, and that the prognosis for them remained poor.

"The supply-demand balance favours excess supply. This looks like a squeeze rather than a fundamental rebound," Mr Englander said.

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