The dollar gained on Thursday despite a fairly weak regional manufacturing survey as traders focused on the index's robust jobs component, which signalled that US economic recovery is still on a solid path.
Comments from Federal Reserve officials on Thursday did little to discourage the view that interest rate hikes are on the agenda, but their statements had little impact on the dollar, analysts said.
The Philadelphia Federal Reserve Bank said its gauge of mid-Atlantic regional industry slowed to 23.8 in May from 32.5 in April. The consensus was for a reading of 32.0.
The underlying details of the report were mixed but not as weak as the headline number suggested.
"The numbers were initially bearish on the dollar, but within the data there were some encouraging news - the employment component increased and prices received (index) was up significantly, implying some pricing power," said Bob Lynch, currency strategist at BNP Paribas in New York.
"Generally we've seen some volatility in this series - I don't think it indicates any problem in the manufacturing sector," he added.
In late afternoon New York trade, the dollar pared some of its gains, with the euro trading at $1.1960 down 0.4 percent. Against the yen, the dollar fell 0.2 percent to 112.75 yen.
The dollar rose about 1 percent against the Swiss franc earlier in the day before trading down to 1.2848 francs. Sterling was at $1.7772, down 0.36 percent.
Traders attributed the slight sell-off in the dollar in the afternoon session to profit-taking.
"It's hard to read into these late-day movements," said Grant Wilson, vice president for foreign exchange at Mellon Bank in Pittsburgh.
"It looks like people were squaring up so they were short euros and now they're just buying back. They were a little bit long on dollar/yen, now they're selling them off," he said.
Short positions effectively are bets that a specific currency will fall.
Dallas Federal Reserve President Robert McTeer further added to US interest rate expectations as he expressed concern over rising inflation. His comments, however, had marginal impact on an already strong dollar in a market that has priced in an interest rate increase by June.
Fed Governor Ben Bernanke, on the other hand, tempered the market's aggressive interest rate outlook, saying that inflation was stable and the US central bank was likely to adopt a gradual tightening of monetary policy.
"His comments didn't really have much impact on the market, We're not paying attention to the 'measured approach' because it has been beaten into us for while," said Wilson.
US interest rates are at there lowest in 46 years and the market is eager for clues to the timing and size of the next rate hike. Interest rate futures are pricing in a rise of a quarter percentage point in June.
Expectations of higher rates have been a major support for the dollar recently as they would enhance the appeal of US-based assets for global investors.
Earlier in the US session, the dollar weakened moderately on news that first-time jobless claims rose unexpectedly to 345,000 in the week ended May 15. The number topped expectations of 326,000 claims.
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