dollar

Dollar retreats to eight-week low against euro

Traders note broad-based pullback for U.S. currency

NEW YORK (MarketWatch) — The U.S. dollar lost ground Wednesday, helping the euro touch its highest level in two months, as investors became more comfortable with Europe’s debt situation and looked forward to economic data from China.

The dollar index /quotes/comstock/11j!i:dxy0 (DXY 78.57, -0.39, -0.50%) , which tracks the greenback against a basket of six other currencies, fell to 78.594, compared with 78.972 late Tuesday.

The euro /quotes/comstock/21o!x:seurusd (EURUSD 1.3470, +0.0081, +0.6051%)  touched $1.3538, the highest since late November. It lately traded at $1.3469, up from $1.3388 in late North American trading Tuesday.

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Against the Japanese currency /quotes/comstock/21o!x:susdjpy (USDYEN 81.9800, -0.5300, -0.6417%) , the dollar fell to 82.04 yen, down from ¥82.61.

China’s expected to release gross-domestic-product and inflation data Thursday, analysts said. A news report from Hong Kong-based Phoenix Television said the reports will show Chinese consumer prices rose at a 4.6% annual rate in December, cooling from a 5.1% pace in November.

Despite a seeming lack of other contributing factors, “the pro-risk mood is in full force and key technical breaks are happening across the board,” said Kit Juckes, head of foreign-exchange strategy at Societe Generale.

“All concerns regarding EMU [Europe’s Economic and Monetary Union], inflation in emerging markets and particularly China are forgotten,” while the heightened sentiment toward risk threatens to overwhelm the bullish trading seen recently in the dollar, he said.

President Barack Obama, in a joint news conference in Washington, pressed Chinese President Hu Jintao to allow the Chinese yuan to strengthen faster. Jintao recently questioned the dollar’s reserve currency role in an interview before his official visit to the U.S. Read more on Obama, Jintao news conference.

Also Wednesday, data showed that December housing starts slowed more than expected, but building permits jumped more than forecast. Read more on U.S. housing starts.

“Mixed U.S. housing-market data and a stronger [Chinese yuan] during the Sino-U.S. talks will probably allow for a slightly weaker U.S. dollar, as long as investors maintain their calm regarding euro-zone debt woes,” wrote strategists at UniCredit Bank in Milan.

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The euro pressed back toward its intraday high after the Greek and German finance ministries denied a report in the German weekly Die Zeit that German officials were weighing a plan that would allow Greece to retire some of its debt by using subsidized credits from the European Financial Stability Facility.

Separately, Portugal completed a sale of 750 million euros ($1.01 billion) of 12-month Treasury bills, with the average yield declining to 4.029% from 5.28% in a December sale. The sale follows last week’s auction of government bonds.

It’s also significant that Spain — its bonds and bank stocks — have rebounded, indicating the biggest economy of the peripheral countries won’t fall as far, said Jens Nordvig, global head of G10 FX strategy at Nomura Securities International.

“Spain is going to be much more resilient,” a key factor in the European Central Bank’s ability to normalize policy, he said. The firm expect the central bank to raise interest rates in September.

While the U.S. currency may remain volatile in coming weeks, “as a big theme for this year we think the dollar is on track to find a bottom” around these levels against the euro, Nordvig said.

Fresh gains for sterling

The British pound /quotes/comstock/21o!x:sgbpusd (GBPUSD 1.5997, +0.0031, +0.1942%)  pared earlier gains but remained up slightly at $1.5986, from $1.5965.

Employment figures released Wednesday showed the number of British workers claiming jobless benefits unexpectedly posted a small decline, but the unemployment rate increased.

The pound had jumped Tuesday after government data showed inflation accelerated to an annual rate of 3.7% in December, boosting expectations the Bank of England will be forced to hike rates sooner than previously expected. Read more on U.K. inflation, interest rates.

“Sterling has continued to gain on the perception that further quantitative easing appears unlikely, and that rates here are likely to start rising ahead of rates in Europe and the U.S.,” said Michael Hewson, market analyst at CMC Markets.

“Friday’s retail-sales figures could prove to be a key indicator to future sterling direction, with expectations pretty low, given the recent downbeat expectations due to last month’s cold weather,” he said.

Deborah Levine is a MarketWatch reporter, based in New York. William L. Watts in London and Sarah Turner in Sydney contributed to this report.

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