NEW YORK, April 16: The dollar retreated broadly on Friday, as soft consumer sentiment and weak manufacturing data overshadowed a report showing hefty inflows to US assets that were sufficient to cover February’s trade deficit.
By midafternoon trade in New York, the euro rose to $1.2907, up about 0.8 per cent from late Thursday, according to Reuters data. The dollar also fell against the Japanese yen to 107.76 yen.
For today’s move, certainly the weakness reflects that concerns about the US economy appear to be driving the dollar weaker, although I would love to see two or three days trading to confirm that this factor is taking hold, said Paresh Upadhyaya, currency portfolio manager with Putnam Investments in Boston.
The dollar earlier slipped to session lows after the University of Michigan headline consumer sentiment reading for April was down at 88.7, below analysts’ forecasts for 91.5.
The New York Federal Reserve’s Empire State Index for New York State also fell, dropping to a two-year low of 3.12 in April from a revised 20.18 reading in March.
Both numbers outweighed capital flows data, which showed healthy demand for dollar-denominated assets, traders said.
Net purchases of US assets were $84.5 billion in February easily enough to counterbalance a record $61.04 billion in February. That trade gap has been a persistent weight on the US currency over the past three years.
Overall, this must be seen as a positive for dollar/majors, but not sufficiently remarkable to set a new course for FX markets which have been paying little heed to economic data so far this month, said Sean Callow, currency strategist, at IDEAglobal in New York.
Dollar bulls can point to the ease with which the US appears to have financed its current account deficit in February while bears will note foreigners’ heavy preference for lower risk, with bond inflows typically hedged at higher ratios than stocks.
Foreign net purchases of US stocks were $7.45 billion, down from purchases in January of $16.41 billion.
Against the Swiss franc, the dollar dropped 1 per cent to 1.2021 francs. Sterling, meanwhile, gained to $1.8897.
Comments by US Treasury John Snow on Friday pressuring China to revalue its pegged currency had marginal impact on the market. However, some traders expected the yen to firm against major currencies going into the Group of Seven meeting of the world’s most industrialized countries.
Nothing’s going to happen this weekend (in terms of China), but I think what’s going to happen is that the yen is going to strengthen relative to other currencies, said John McCarthy, director of foreign exchange at ING Capital Markets in New York.
I think euro/yen could slip down as the day goes on, and the dollar/yen should also come down, he added.
The yen is the currency most sensitive to news on China. A break of the yuan’s current peg, currently fixed at 8.28 to the dollar, is expected to make Japanese exports more competitive.
Traders are also attuned to the G7 meeting in Washington this weekend to see what the monetary officials have to say about oil prices and global imbalances.
Earlier this week, the US currency rallied to two-month highs against the euro, showing resilience in the face of a record US trade deficit, weak retail sales data, tumbling stock markets and falling Treasury bond yields.—Reuters
