Dollar May Advance as U.S. Output Data Spur Demand for Safety

Nov. 18 (Bloomberg) -- The dollar traded near a two-week high against the euro after U.S. industrial production rose in October less than economists forecast, reviving concern the economic recovery will be sluggish.

The U.S. currency rallied yesterday after European Central Bank President Jean-Claude Trichet said a strong dollar is in the world’s best interest. The pound traded near a two-month high versus the euro after a Bank of England policy maker said this week that Britain risks stoking inflation if it keeps stimulus in place for too long.

“The U.S. dollar may stage a near-term rebound,” said Tony Morriss, senior markets strategist in Sydney at Australia & New Zealand Banking Group Ltd. “Some sorts of unwinding of risk positions are going on into the end of this year. For those investors who had good returns this year, this will be a good time to lock in.”

The dollar traded at $1.4886 versus the euro as of 9:26 a.m. in Tokyo from $1.4876 in New York yesterday, when it touched $1.4808, the strongest since Nov. 4. The U.S. currency was at 89.27 yen from 89.25 yen. The euro bought 132.90 yen from 132.77 yen.

The greenback gained yesterday after a Federal Reserve report showed U.S. industrial production increased 0.1 percent last month after a 0.6 percent advance in September. Economists in a Bloomberg survey called for a 0.4 percent gain.

Dollar Index

The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency’s value against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, increased 0.6 percent to 75.327 yesterday.

Fed Chairman Ben S. Bernanke said on Nov. 16 in New York that the central bank is “attentive” to changes in the dollar’s value and its policy “will help ensure that the dollar is strong.” Trichet said yesterday Bernanke’s comment was “very important.”

Gains in the dollar may be curbed before government reports today forecast to show U.S. housing starts rose and building permits gained last month.

“Good economic data are coming out constantly, as the Fed clearly indicated it won’t raise rates for a while,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “That’s calling for more dollar-carry trades.”

Housing Data

The Commerce Department will say U.S. housing starts rose to an annual rate of 600,000 in October from a 590,000 pace in September, according to the median estimate of economists in a Bloomberg News survey. The report is due today in Washington. Permits, a sign of future construction, probably advanced to an annual rate of 580,000 last month from 573,000 in September, according to a separate survey.

In carry trades, investors get funds in a country with relatively low borrowing costs and invest in another nation with higher interest rates. Benchmark interest rates are as low as zero in the U.S., 1 percent in the 16-nation region that uses the euro, and 3.5 percent in Australia.

Sterling gained yesterday after the Bank of England’s Andrew Sentance said in a speech on Nov. 16 that officials are moving from “firefighters in the recession to a more familiar role -- steering the economy through an upswing underpinned by low inflation.”

The pound traded at 88.47 pence per euro from 88.49. It touched 88.34 yesterday, the strongest since Sept. 15.