NEW YORK: The US dollar slipped against a basket of major currencies on Wednesday after weak US economic data led traders to buy back the euro and sell the dollar on uncertainty over the timing of the Federal Reserve's first interest rate hike in nearly a decade.
The dollar index slipped for a second straight session in the wake of data showing US industrial output posted its biggest drop in more than 2-1/2 years in March and growth in manufacturing activity in New York state unexpectedly contracted in April.
"The softer US economic data that we've been seeing recently could delay market expectations of the timing of the first rate hike," said Eric Viloria, currency strategist at Wells Fargo Securities in New York.
Analysts have said that currency traders have become highly sensitive to US economic data releases since they offer clues on when the Fed could hike rates from rock-bottom lows.
A Fed rate hike is expected to boost the dollar by driving investment flows into the United States.
The euro, which traded lower against the dollar in morning trading, gradually appreciated against the greenback. The euro's recovery occurred despite the European Central Bank reiterating its dovish stance on monetary policy.
The popularity of 'short' bets against the euro has given way to bouts of choppy trading, and Wednesday's session showed traders taking profits in some of these short positions, said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments.
"It is the extreme positioning of the speculators that causes these stronger moves," he said.
"You need just somebody to put in a buy order and everybody piles in." The euro was last up 0.18 percent against the dollar at $1.06755 after hitting a high of $1.07030 earlier in the session.
Despite its gains against the dollar, the euro failed to break above Tuesday's session high of $1.07080.
The dollar was last down 0.15 percent against the yen at 119.200 yen after hitting its lowest against the yen in one and a half weeks of 118.790 yen.
The dollar was down 0.72 percent against the Swiss franc at 0.96550 franc after hitting a one-week low of 0.96365.
The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.38 percent at 98.355 after hitting a nearly one-week low of 98.216.
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