The dollar weakened on Friday as a fairly disappointing batch of US economic data encouraged traders to take profits on earlier gains.
Analysts said market expectations of near-term monetary tightening, which had pushed the dollar to multi-month highs against the euro earlier this week after a raft of robust US economic data, were now ebbing.
"The data that came out today may have given reason for pause in terms of the Fed's tightening expectations that have been built up over the past couple of weeks. We've also seen yields come down pretty substantially since Wednesday," said Bob Lynch, currency strategist at BNP Paribas in New York.
An interest rate hike would enhance the allure of US assets for global investors, helping lift the greenback.
"I think the markets would want validity in terms of what they've priced in terms of the Fed," Lynch added.
The University of Michigan preliminary consumer sentiment index for April came in at 93.2, below forecasts for 96.5 and March's final reading of 95.8.
US industrial production fell unexpectedly in March and capacity utilisation eased slightly.
By late afternoon in New York, the euro was trading at around $1.1990, up about 0.08 percent and well off Wednesday's $1.1863, which was the lowest level since November, according to Reuters data.
News that Bundesbank President Ernst Welteke had resigned hardly caused the euro to budge.
Against the yen, the dollar was at 107.69 yen, down about 0.35 percent and below one-month peaks scaled on Thursday. Traders also attributed the dollar's fall to some stop-loss triggers below 108 yen.
Against the Swiss franc, the dollar was slightly down at 1.2949 francs. Sterling was up 0.3 percent at $1.7976.
Analysts said that in the wake of weaker-than-expected US data, investors took profits on their long dollar positions, which are effectively bets that the greenback will rise.
"Traders are squaring their failed positions - meaning being long dollars against the euro, sterling and the Aussie after the data," said Joe Francomano, vice president of foreign exchange at Erste Bank in New York.
"But overall dollar sentiment is still positive, although it's a little tepid," he added.
The market will focus on Federal Reserve Chairman Alan Greenspan's testimony before Congress next week on the state of the US banking industry.
"If for whatever reason the markets interpret something he says as indicating an earlier rate hike, then that would work in the dollar's favour. If it doesn't, then the dollar will give back a little bit more," said BNP's Lynch.
Earlier, the dollar pared gains against the euro after a Federal Reserve official cast a note of caution about the possibility of a rate increase in the near term.
Richmond Federal Reserve President Alfred Broaddus said he thought the Fed is some distance from seeing conditions for a rate hike.
Broaddus added that he was not "unduly concerned" about the risk of a near-term inflation surge, adding that he still saw "considerable" slack in the US economy.
Comments
Comments are closed.