Dollar posts modest rise after stronger-than expected CPI, housing data

Dollar posts modest rise after stronger-than expected CPI, housing data

LONDON - The dollar posted a modest rise after US inflation and housing figures came in stronger than expected.

The CPI measure of inflation rose 0.2 pct in June from May, the smallest monthly increase since January but above analyst expectations of a 0.1 pct rise.

Meanwhile in the US housing sector, which is generally seen as the economy's weakpoint, figures showed the number of new homes built in June posted a 2.3 pct rise from a year ago to a 1.467 mln unit annual rate. The consensus forecast had been for a more moderate rise to 1.450 mln units.

The figures caused the dollar to make a moderate gain against the euro, although its moves are likely to be limited while markets await Federal Reserve chairman Ben Bernanke's testimony to congress.

At 1.44 pm, the euro was at 1.3755 usd having been at 1.3780 shortly before the data was released. The pound also slid further off its morning high against the greenback, dropping to 2.0464 usd from 2.0505.

The pound, which had earlier set a 26-year high of 2.0547 usd, retreated steadily to below the 2.04 usd level on the news that the 9-strong BoE rate-setting committee was split by a 6-to-3 margin to hike borrowing costs to 5.75 pct this month.

The news was seen as a little less hawkish than expected and led to a slight scaling back in rate hike expectations.

Markets still predict another quarter point hike, to 6.00 pct, over the coming months but appear to be a little less certain whether an increase to 6.25 pct will materialise.

However, Bear Stearns analysts said the data will do little to change the outlook for interest rates in the UK.

"The tone of the MPC hawks remains uncompromising and it sounds like the UK is on a collision course with 6.0 pct rates before year end," they said. "There is obviously a split in thinking in the MPC in terms of how far rates need to go, so timing for the next move will be down to the data and (BoE governor) Mervyn King's hearts and minds campaign in the next few months," they added.