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Dollar Pulls Back From 7-Month High

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The dollar fell from a seven-month high against a basket of currencies on Thursday as some traders bet it may have rallied too quickly recently on optimism about the U.S. economy.

The dollar also came off a three-month peak against the euro and surrendered most gains versus the yen, but analysts say the outlook for the U.S. currency remains bright on expectations the U.S. economy is outperforming its major counterparts.

U.S. jobless claims unexpectedly fell in the latest week, while the current account deficit narrowed in the fourth quarter, government data showed Thursday. Other reports over the past week highlighted improvement in the U.S. labor market and consumer spending.

"We're at a point right now where we're going to need some significantly positive news to help the dollar post its next leg higher," said Omer Esiner, chief market analyst with Commonwealth Foreign Exchange in Washington. "We're going to need confirmation from upcoming U.S. economic data that the optimism surrounding the U.S. recovery is justified."

The dollar index, which measures the value of the greenback versus a basket of currencies, fell 0.4 percent to 82.56. It had earlier risen as high as 83.166, the highest since Aug. 3.

An improving U.S. economic picture has revived talk that the Federal Reserve might pare back monetary easing measures towards the end of this year. Some analysts said rising 10-year U.S. Treasury yields could signal further dollar gains.

The euro rose 0.4 percent to $1.3005, rebounding from a session low of $1.2910, the weakest since Dec. 10. Support lies around $1.2876, the 50 percent retracement of the euro's rise from July to February.

Contrasting a positive U.S. growth outlook, euro zone employment fell 0.3 percent in the last three months of 2012, data showed on Thursday, intensifying concerns about the region's economic outlook.

Data on Wednesday showed a bigger-than-expected drop in euro zone factory output in January. "Weak euro zone industrial production and employment data contrasts with stronger U.S. employment and retail sales figures, which is driving interest rate expectations in favor of the dollar over the euro," said Adam Myers, senior currency strategist at Credit Agricole.

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Credit Agricole forecasts the euro will fall to $1.27 by the end of June, though Myers said there was a risk it could fall further.

Demand from central banks to diversify their dollar holdings into euros could temper euro falls, however.

Political uncertainty in Italy and a likely bailout for Cyprus also kept the euro under pressure.

Investors also focused on a EU summit that will discuss budget policies, with signs that France, Spain and Portugal could be given more time to meet their deficit goals as long as they maintain a debt-cutting trend.

The dollar also rose to a six-month peak against the Swiss franc and the Norwegian crown after central bank policy decisions and accompanying comments in Switzerland and Norway pushed those currencies lower.

The Swiss franc fell to 0.9567 per dollar, its lowest since early September, after the Swiss National Bank said it stood ready to take more monetary easing measures if needed. It also said the currency was still too high and that it would enforce the 1.20 franc per euro limit with "utmost determination."

The dollar later erased gains and was last at 1.0561, down 0.7 percent.

Norway's crown hit a low of 5.73, also its strongest since early September after the Norges Bank said its key policy rate would be kept low for longer than market participants had expected.

The dollar was last down 0.1 percent at 95.97 yen. Expectations of aggressive policy easing from the Bank of Japan are expected to underpin the dollar, with many traders looking for a retest of the 3 1/2-year high of 96.71 yen hit on Tuesday.

The euro rose 0.2 percent to 124.85 yen but was still some way from the 34-month peak around 127.70 set last month.

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