LONDON: The dollar hit a seven-week low against the euro on Wednesday and its lowest level this year against a basket of currencies, weighed down by soft US data ahead of the release of minutes from the Federal Reserve's latest meeting. The euro rose as high as $1.37735 during Asian trading, its strongest level since January 2.
The dollar later gained ground, leaving the euro last trading down 0.1 percent at $1.3744, with equity markets offering investors little direction. Tuesday's New York manufacturing and US housing data were the latest numbers out of the United States to disappoint investors, increasing pressure on the dollar.
The numbers bolstered the case for the Federal Reserve to be patient in its tapering of its huge bond-buying programme, ahead of the minutes from the January policy meeting when the Fed opted to trim asset buying by another $10 billion. The data also pushed Treasury yields lower, with the yield spread between 2-year Treasuries and German 2-year Bunds down over the past week offering less support to the greenback.
Against a basket of major currencies, the dollar index fell as low as 79.927, its lowest level this year, before recovering to trade up slightly on the day at 80.044.
"It (the weak US data) is certainly in the background.
There's been a period of nearly three weeks where US data has come in pretty consistently below expectations," said Simon Smith, FxPro's head of research.
"It's not as obvious as previously that saying the Fed would taper quantitative easing is decidedly dollar bullish."
Nevertheless, most strategists still expect the Fed to keep tapering, barring a major economic shock, although some think QE could continue into next year, driven by the need to keep economic growth going. "Our economists expect today's FOMC minutes to (say) that the tapering process remains on track and is unlikely to be interrupted barring a significant shock to the economic outlook," said Adam Cole, head of G10 FX strategy at RBC Capital, in a note.
"In other words, a $10 billion reduction per meeting should be everyone's base case."
The Canadian dollar hit a one-month high at C$1.0911 per US dollar. The loonie has been a favourite short bet for hedge funds in recent months, and while the recent rally has been painful for managers, many have still made money on their bet.
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