NEW YORK (MarketWatch) -- Disappointing earnings outlooks from European banks Wednesday overshadowed the impact of Democrat Barack Obama's historic U.S. presidential victory, trimming risk appetite and lifting the Japanese yen and the U.S. dollar to modest gains.
"Barack Obama has been elected new president of the U.S.A., but the reaction on currency markets was muted," said Marcus Hettinger, currency strategist at Credit Suisse in Zurich.
Obama, a senator from Illinois, swept to an overwhelming victory in the Electoral College and led Republican rival and Arizona Sen. John McCain in the popular vote. See full story.
The euro fell to $1.2919 from $1.3002 in North American trade late Tuesday.
European equities turned lower in early trading and remained on the defensive at midsession. See Europe Markets.
"Until it becomes clear whether there will be any material change of direction for policy [under Obama], which could take weeks if not months, markets will likely now go back to watching equity markets, central banks and economic data" for direction, said Adam Cole, global head of foreign exchange strategy at RBC Capital Markets.
Economic data out of the euro zone continued to paint a gloomy picture. The Frankfurt-based European Central Bank is widely expected to cut its key lending rate by a half point to 3.25% when its Governing Council meets Thursday. See full story.
The October purchasing managers index for the 15-nation euro-zone services sector indicated activity shrank at its quickest pace in a decade. The services PMI tumbled to 45.8 from 48.4 in September, and was weaker than expected.
Retail sales volume in the euro zone fell by a smaller-than-expected 0.2% in September, but declined 1.6% on an annual basis, according to the statistical agency Eurostat.
The dollar index , a measure of the greenback against a trade-weighted basket of six currencies, paired earlier gains to stand at 84.816, up from 84.533.
The dollar retreated against the Japanese yen, slipping to 98.70 yen from 99.62 yen.
Companies in the U.S. private sector shed 157,000 jobs in October, according to the ADP employment report, suggesting the job market in the U.S. is deteriorating further. The report comes two days before the Labor Department reports on nonfarm payroll growth for October.
A warning by Allied Irish Banks on its earnings outlook and disappointing results from BNP Paribas contributed to the negative tone, said Kenneth Broux, a strategist at Lloyds TSB.
The yen has been the ultimate beneficiary of sharp spikes in risk aversion as traders have abandoned once-popular carry trades. Those strategies centered on borrowing in low-yielding currencies, such as the yen, and buying assets denominated in higher-yielding currencies.
De-leveraging and liquidation have proved supportive to the dollar over the same period, as U.S. investors abandoned emerging markets and other foreign investments. Safe-haven buying also served to underpin the greenback as worries mounted recently over emerging markets, strategists said.
