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Dollar Mixed Against Major Currencies

August 21, 2006

NEW YORK (AP) _ The dollar fell against the euro and pound but edged up against the yen Monday amid expectations that the Federal Reserve will continue to keep interest rates steady.

The 12-nation euro bought $1.2892 in late afternoon trading in New York, up from $1.2825 late Friday in New York. Earlier in the day, the euro rose above $1.29 for the first time since June. The British pound rose to $1.8934 from $1.8812.

The dollar gained marginally against the Japanese currency, edging up to 115.80 yen from 115.77 yen.

The U.S. currency is sensitive to hints about future interest rate policy amid uncertainty about the Federal Reserve’s course. The bank left interest rates unchanged this month for the first time since it started a credit-tightening drive in mid-2004.

The dollar was depressed by disappointing consumer sentiment figures Friday. The University of Michigan’s preliminary sentiment index registered a larger-than-expected drop.

``This really does seem to be convincing many traders that the Fed will leave rates unchanged for some time now,″ said Wayne Roworth, a senior foreign exchange dealer at CMC Markets.

Housing data this week and a speech by Fed Chairman Ben Bernanke on inflationary pressures could move currencies.

However, ``unless there’s another strong signal to suggest the hawkish stance (on inflation) may return, then the dollar is likely to find it difficult to rally any meaningful support,″ Roworth said.

Higher interest rates, used to fight inflation, support a currency by making some classes of investment more attractive to international investors.

The European Central Bank is expected to hike its key lending rate beyond the current 3 percent by year’s end. The Bank of Japan raised its benchmark interest rate to 0.25 percent from zero in July, and analysts expect further increases.

In other trading, the dollar bought 1.2239 Swiss francs, down from 1.2326 late Friday, and 1.1173 Canadian dollars, down from 1.1256.

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