Price rise figures steady dollar

THE DOLLAR dipped again yesterday but US consumer price figures, showing only a modest rise in inflation last month, helped to steady the ailing currency.

The dollar closed higher in London, although it later fell back in New York. US consumer prices in June rose an expected 0.3 per cent. Its annual rate of increase was steady at 2.6 per cent, which helped to calm financial markets.

Excluding food and energy, consumer prices rose 0.3 per cent in June and were 3.6 per cent higher than a year earlier.

Although rumours of an imminent increase in interest rates by the Federal Reserve swept the exchange markets, most analysts thought this week's inflation figures meant interest rates would not move until at least next Tuesday, when Alan Greenspan, the Fed's chairman, testifies to Congress.

The currency market's attention will now focus on industrial production and capacity utilisation figures due on Friday. Paul Lambert, an economist at UBS, said: 'These are more important because they will give an indication of whether the economy is still growing robustly.' Fast growth could be a reason for the Fed to tighten policy.

The dollar's weakness against the yen and mark has now stretched over several months. Julian Jessop, currency economist at Midland Global Markets, said there were signs that it was finally stabilising.

He said that with markets fully discounting an increase in US interest rates, something like significant progress in trade talks with Japan could halt the dollar's slide.

A small reduction in the German repo rate, one of the less significant official interest rates, by the Bundesbank, was also read as a favourable sign for the dollar.

It closed up 2 pfennigs at DM1.5380 and up Y1.31 at Y98.03 in London.