Dollar strengthens following auspicious Fed reports

NEW YORK - The dollar moved higher Thursday, bolstered by signs of economic strength in two regional Federal Reserve reports and by traders exiting positions that had been bullish on the Japanese yen.

Late Thursday, the euro was trading at $1.2344, down from $1.2396 late Wednesday in New York. The dollar was trading at 109.77 yen, up from 108.94. The dollar was at 1.2386 Swiss francs, up from 1.2280, while the British pound was trading at $1.8519, down from $1.8567. Against the Canadian dollar, the dollar rose to 1.3235 from 1.3217.

The market largely shrugged off data on inflation, industrial production, and jobless claims, all of which confirmed the dollar-bearish view that Federal Reserve policy-makers aren't under big pressure to raise interest rates. Since that generally jibes with prevailing market views, the reaction to the data was light.

"Reaction to these numbers was very neutral and I think there's a feeling that markets are happy to have them out of the way," said Thomas Molloy, a trader at Bank Leumi in New York.

Investors took the biggest cues of the day from two regional reports that showed strength in some of the nation's key economic zones: Philadelphia and New York. Additionally, the market was supported by stability in U.S. stocks even as they face several downbeat earnings reports and outlooks.

"It's not been a day of major flows or fundamental moves, but with both the Empire State and Philly indexes higher, and with stocks holding in, we're seeing some reminder that it's not all bad news for the economy," said Steven Englander, chief currency strategist at Barclays Capital in New York.

The New York Fed reported that its Empire State manufacturing index rose to 36.54 in July from 29.93 in June, helped by rising orders and shipments. The Philadelphia Fed said that its index of business conditions, which gauges the health of the region's manufacturing sector, soared to 36.1, from 28.9 in June and 23.8 in May.

Though the data had a positive impact on the market, Englander characterized Thursday's trading as a short-term rebound for the dollar rather than a new trend.

"The market is cautious, but the consensus still seems to be short the dollar due to the majority of Fed comments and economic data that have emerged recently," said Englander.

Aside from the regional Fed indexes, the market faced an early barrage of data on wholesale prices, industrial production and jobless claims - all of which corroborated recent signs that inflation is low and that economic growth is slowing.

Following nearly two weeks in which the dollar has generally lost ground against other majors, traders said the market was already positioned for the weak tone of the data.