By William L. Watts and Sarah Turner, MarketWatch
LONDON (MarketWatch) — The U.S. dollar index erased early gains to trade near unchanged Wednesday, but the greenback held modest gains against the Japanese yen and the Swiss franc as traders awaited March retail-sales figures.
The dollar index (DXY 74.81, -0.04, -0.05%) , which measures the U.S. currency against a basket of six other currencies, traded at 74.849 Wednesday, little changed from 74.847 in late North American action Tuesday.
After trading as high as $1.4519, the euro (EURUSD 1.4494, +0.0020, +0.1382%) was lately at $1.4505, up from $1.4489 in late North American trading Tuesday.
Helping to cap the 17-nation shared currency, euro-zone industrial orders rose 0.4% in February versus expectations for a 0.8% increase, although the data’s lasting impact is likely to be minor, given that the figures are two months old, said Boris Schlossberg, head of currency research at GFT, in emailed comments.
The euro continued to struggle to push past nearly 15-month highs above $1.4500.
The dollar (USDYEN 84.0400, +0.3900, +0.4665%) bought 84.05 yen Wednesday, up from ¥83.74 in late North American trading Tuesday.
That gain marked a reversal from Tuesday’s session, when the yen gained ground after Japan raised its assessment of the Fukushima Daiichi nuclear-plant crisis to the same level as the 1986 Chernobyl disaster and the highest level on an international scale.
Currency strategists at BNP Paribas said that concerns about the upgrade of the nuclear crisis triggered an unwinding of Japanese yen short positions. Still, they said the rationale for a weaker yen remains strong, “given the likelihood that the Bank of Japan will employ further easing measures.”
The Japanese government downgraded its economic forecasts Wednesday to reflect last month’s events, with exports and consumption among the areas seen as hardest hit. See report on downgrade to Japan’s economic outlook.
U.S. March retail-sales data are set for release at 8:30 a.m. Eastern. Economists surveyed by MarketWatch expect a 0.5% monthly rise after a 0.7% increase in February. Excluding autos, sales are forecast to rise 0.7%, matching the increase seen in February.
“Given the high cost of gasoline and the dour consumer-sentiment readings, there is a possibility that the numbers could miss to the downside,” Schlossberg said. “The retail-sales data could prove key to the fortunes of USD/JPY, which has come off its recent highs near the ¥85 figure to consolidate below the ¥84 level.”
Weaker-than-forecast consumer spending would dent expectations for U.S. Federal Reserve policy makers to prepare for an eventual tightening of monetary policy, leaving dollar/yen to drift back toward ¥83, he said.
The dollar also advanced Wednesday against the Swiss franc (USDSWF 0.8963, -0.0004, -0.0446%) , buying 89.86 centimes, a rise of 0.2%. One hundred centimes equal one Swiss franc.
On Tuesday, the U.S. currency dropped 1.2% against the franc, as perceived safe-haven buying in the wake of Japan’s upgrade of its nuclear-crisis level supported the Swiss currency as well as the yen.
The British pound (GBPUSD 1.6281, +0.0021, +0.1292%) traded at $1.6269, up slightly from $1.6262 Tuesday, when it fell sharply after a softer inflation report curbed interest-rate-hike expectations. British unemployment data offered a mixed bag for traders Wednesday. Read Market Pulse on U.K. labor data.
“After yesterday’s CPI data, markets have moved from pricing a 50% chance of a May [Bank of England] hike, to a 25% chance,” said Elsa Lignos, senior currency strategist at RBC Capital Markets. “We still think it’s [a] more finely balanced decision than that and await the Q1 GDP release” on April 27.
Also Tuesday, a drop in commodity prices dented sentiment toward the Australian dollar (AUDUSD 1.0495, +0.0059, +0.5653%) , which traded at $1.0473 versus its U.S. counterpart in late North American action. The Aussie bounced back Wednesday to change hands at $1.0503 in recent action.
“The Aussie has shown decent recovery powers after the ‘risk-off’ move yesterday, and we continue to feel that the Aussie remains a buy on dips against both the dollar and the yen,” said Steven Barrow, currency and fixed-income strategist at Standard Bank.
