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Dollar rises to four-week high ahead of long weekend; euro skids

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The U.S. dollar advanced to a four-week high against a basket of major currencies on Friday, helped by persistent uncertainty about Syria and a weak euro that has struggled in the wake of soft euro zone economic data.

While Britain rejected joining military action against Syria, the United States said it would continue to seek an international coalition on the issue, suggesting a strike on Damascus, though not imminent, is likely at some point.

The euro, meanwhile, fell to five-week lows against the dollar on data showing benign inflation and elevated unemployment in the euro zone.

"There has been a lot of pressure on the euro because of the weak data," said Camilla Sutton, chief currency strategist at ScotiaBank in Toronto. As a result, the European Central Bank had room to deliver a relatively dovish message at next week's monetary policy meeting, she said.

Friday's U.S. data were soft as well, save for the manufacturing index for the Midwest, which saw the index for prices paid, an inflation signal, rise to its highest since November.

But the 0.1 percent increase in both personal income and consumption was lower than expected for the month of July. For many market participants, however, those numbers won't prevent the Federal Reserve from paring back its stimulus next month, even if the reduction is at a smaller scale.

The interest rate-sensitive two-year U.S. Treasury yield traded near its highest since early July at 0.3947 percent while the 10-year yield was firm at 2.76 percent, widening the gap between comparable German Bund yields and lending support to the dollar.

In midday New York trading, the dollar index was at 82.161, after hitting a four-week high of 82.263

The euro was down 0.3 percent at $1.3199, touching a five-week low of $1.3172. The currency slipped from highs after Eurostat said annual consumer price inflation in August would be 1.3 percent, down from 1.6 percent in the previous month. And while business confidence rose, unemployment remained high at 12.1 percent.

Investors will be wary of buying the euro before next week's ECB meeting, where policymakers are likely to reiterate their pledge that rates will be low for some time as economic recovery sets in slowly.

"Euro zone unemployment shows that the real economy is in dire straits and underlines that the ECB must keep monetary policy super-accommodative for years to come," said David Brown, economist at New View Economics.

The dollar eased 0.2 percent versus the yen to 98.21 yen, off an intraday high of 98.47 yen. Traders said dollar-selling by Japanese exporters at month-end helped the yen.

The yen's rise was limited, however, due to ebbing of safe-haven bids as emerging Asian currencies such as the Indian rupee and Indonesian rupiah regained a bit of calm after a sell-off earlier in the week.