NEW YORK (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 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 dollar index, which measures the performance of the greenback against a basket of currencies, rose to 78.969 from around 78.477 in North American trading Tuesday afternoon.
"The markets are also being calmed after officials from China to Japan, India, Russia and South Korea announced that the U.S. dollar remains the world's main reserve currency," strategists at Brown Brothers Harriman said.
The dollar held up after the ADP employment index indicated the U.S. private sector eliminated 532,000 net jobs in May, after a 545,000 drop in April. See more on the ADP report.
The U.S. economic calendar also features April factory orders at 10 a.m. Eastern time and the ISM nonmanufacturing gauge, which is due around that same time.
Markets will also be paying close attention to Federal Reserve Chairman Ben Bernanke's testimony before the House Budget Committee.
"The market will be looking for an update on his 'green shoots,' any commentary on plans the Fed might have to combat rising borrowing costs, and his thoughts on rising energy prices and core inflation in April," said T.J. Marta of Marta on the Markets.
Currency markets have tended to closely track equity markets lately, as falling stocks indicate investor aversion to risk and greater demand for the dollar. Rising stocks are taken as a sign of increasing comfort with risk and less need for the safe haven of the U.S. currency.
The euro slipped to $1.4210, 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 better-than-expected May reading of 44, an eight-month high.
Separately, euro-zone producer prices registered a bigger-than-foreseen monthly drop in April, statistics agency Eurostat reported. The agency also reported a 2.5% quarterly contraction in first-quarter euro-zone gross domestic product, unchanged from a preliminary estimate released last month.
Sterling in spotlight
Also Wednesday, the British pound jumped to a fresh seven-month high against the dollar in early action only to retreat after the CIPS/Markit purchasing managers index for May showed the country'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 political turmoil in the United Kingdom. See coverage of Question Time in Parliament from Times Online.
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 Brown's ruling Labour Party.
