Asian central banks verbally back the greenback: report
LONDON (MarketWatch) -- The dollar halted its recent slide against the euro and other major currencies Wednesday, finding support on a news report that signaled major Asian central banks are prepared to keep buying U.S. Treasurys.
A Reuters report cited unnamed sources as saying that central banks in China, Japan, India and South Korea would likely shrug off portfolio losses stemming from any potential cut in the U.S. sovereign credit rating, opting to continue buying dollars because there are no alternatives in terms of the liquidity afforded by the currency.
The report indicates officials in the region have become nervous about the scope of the dollar's recent decline, said Daragh Maher, a currency strategist at Calyon Bank.
The dollar index , which measures the performance of the greenback against a basket of currencies, rose to 78.847, up from around 78.477 in North American trading Tuesday afternoon.
The euro slipped to $1.4234, down from $1.4323 on Tuesday, as currency traders shrugged off fresh economic data for the 16-nation euro zone.
The Markit composite purchasing managers index rose to 44.0 in May, hitting an eight-month high. While still pointing to a contraction in activity, the index posted a record jump from a reading of 41.1 in April and exceeded a preliminary estimate that called for an increase to 43.9.
Meanwhile, euro-zone producer prices registered a monthly drop of 1% in April, taking prices 4.6% below the level seen in the same month last year, statistics agency Eurostat reported. Economists had forecast declines of 0.9% on a month-to-month basis and 4.5% from April 2008.
Eurostat also reported a 2.5% quarterly contraction in first-quarter euro-zone gross domestic product, unchanged from a preliminary estimate released last month.
Against this backdrop, equity markets traded mixed.
Tokyo's Nikkei 225 index gained ground overnight, while European equities were mostly lower. Stock index futures pointed to a lower open for Wall Street. See Indications.
The U.S. economic calendar features ADP's estimate of May private-sector payrolls, due at 8:15 a.m. Eastern time, as well as April factory orders at 9 a.m. and the ISM non-manufacturing gauge, which is due around 10 a.m.
Markets will also be paying close attention to Federal Reserve Chairman Ben Bernanke's testimony before the House Budget Committee.
Aussie and sterling in spotlight
The Australian dollar temporarily added to recent strong gains as government statistics showed GDP unexpectedly rose by a seasonally adjusted 0.4% in the first quarter, in comparison to both the previous quarter and the first quarter of last year.
The Aussie later came off those highs to trade 81.84 U.S. cents, down 0.3%.
Also Wednesday, the British pound jumped to another fresh seven-month high against the dollar in early action only to retreat after the CIPS/Markit purchasing managers index for May showed the nation's services sector expanded for the first time in 13 months. See full story.
Traders felt the rise had already been largely factored into sterling in light of the currency's recent rally, Maher said. Read more about sterling's recent rise.
In recent action, the pound traded at $1.6570, little changed from Tuesday afternoon.
The currency continues to show little reaction to rising political turmoil in the United Kingdom.
Resignations in the wake of a long-running newspaper probe into lawmakers' abuse of parliamentary expense policies have decimated Prime Minister Gordon Brown's cabinet ahead of county council and European Parliament elections that are expected to produce bleak results for the ruling Labour Party.
