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Strong Consumer Data Rallies The Dollar

The dollar moved higher against the major currencies after the University of Michigan's final December consumer sentiment reading beat forecasts.

The dollar rallied to its highest level against the yen in nearly two months. The euro is .

Dollar buying accelerated after the University of Michigan reading came in at 91.7, lower than the prior reading for December but above Wall Street's expectations.

Earlier today, tame inflation data had weighed on the dollar. The Commerce Department reported core consumer prices, which exclude food and energy, were unchanged. Analysts had expected a 0.2% rise.

"We still expect the Fed to cut rates next year. There is a feeling the market is more nervous about the activity outlook than inflation outlook. If activity is too slow, that will bring down inflation," said Daragh Maher, currency strategist at Calyon.

"The market is struggling to find direction. We will have some numbers later but it's sideways trading."

The euro was up 0.2% on the day at $1.3192. The dollar was steady at 118.38 yen.

The euro was up 0.2% at 156.22 yen, off the previous day's record high of 156.45.

U.S., British and European markets are closed on Monday for Christmas Day, and the UK and many European markets will also be closed on Tuesday.

The dollar showed a muted reaction on Thursday to data showing the U.S. economy grew slightly slower than forecast in the third quarter and the Philadelphia Fed reported a sharp dropin mid-Atlantic area factory activity in December.

It gained little following hawkish comments from Richmond Fed President Jeffrey Lacker, who said U.S. economic growth should pick up gradually next year and warned that the main threat to this benign outlook was higher inflation.

"In the New Year, however, we expect data to bolster market concerns on the health of the U.S. economy, and a rebuilding of Fed easing hopes should keep euro/dollar pointed towards our 1-month $1.32 target," UBS said in a note to clients.

Rates Outlook

The euro has been a clear winner in recent sessions as the European Central Bank is set to raise interest rates further from 3.5%t whereas the outlook for monetary policy in the United States and Japan remain uncertain.

The low-yielding yen was unfazed by minutes from the Bank of Japan policy board meeting on Nov. 15-16 that showed boardmembers agreed to gradually adjust the 0.25% overnight rate the central bank has maintained since July.

One of the nine members said the BOJ should not hesitate to consider a policy change if economic and price moves matched its expectations.

But that failed to dent speculation that the BOJ may not raise rates in January after the policy board held rates steady again earlier this week and BOJ Governor Toshihiko Fukui said consumption and prices were somewhat weak.

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