By William L. Watts and Lisa Twaronite, MarketWatch
LONDON (MarketWatch) — The U.S. dollar faded versus major rivals Thursday as investors showed renewed appetite for equities and commodities.
The dollar’s direction has been driven largely by improving risk sentiment this week, leaving the greenback under pressure, noted Kit Juckes, head of foreign-exchange strategy at Societe Generale.
“On our simple view of things, markets are now at risk of pre-weekend jitters. It isn’t obvious where those would come from but it is ever thus,” he said, in a note to clients.
Improving risk appetite has tended to weigh on the dollar, although the dollar index DXY -0.14% , a measure of the U.S. unit against a trade-weighted basket of major rivals, remains up more than 3% in the month-to-date after commodity-oriented currencies and the euro retreated sharply in the early-May commodity crash.
The index traded at 75.289 in recent action, down from 75.438 late Wednesday. See real-time currency quotes and tools
The U.S. unit remained slightly higher versus the Japanese yen, after data showed Japan’s economy contracted more than expected due to the effects of the March disaster.
Japan’s economy shrank at an annualized pace of 3.7% in the January-through-March quarter, almost double the margin economists had expected, as the March 11 earthquake and tsunami pushed the country back into recession. Read more Japan GDP report.
Against the Japanese currency, the dollar USDYEN +0.2327% rose to 81.87 yen from ¥81.58 in late North American trading Wednesday.
The Japanese unit weakened “as an improved tone to financial markets and sharply [lower] Japanese growth figures encourage outflows,” said currency strategists at Brown Brothers Harriman.
The euro EURUSD +0.0211% traded at $1.4246, up from $1.4233 late Wednesday.
The euro has seen pressure after failing to break through $1.4300, which remains a key barrier for now, said Kathleen Brooks, research director at Forex.com.
She said worries about Europe’s sovereign-debt problems, including concerns about divisions between some European Union policy makers and the European Central Bank over restructuring of Greek debt leave the shared currency vulnerable to further weakness.
ECB officials on Wednesday were united in criticizing any effort to let Greece extend the maturities or otherwise restructure sovereign debt as potentially disastrous to the banking sector. EU officials earlier in the week left the door open to a potential “soft restructuring” or “re-profiling” of Greek debt. Read “ECB holds line against Greece restructuring.”
Brooks noted that Spanish government bonds, which had previously been immune to upward yield pressure, have been trending higher and that Sunday’s local and regional Spanish elections will be a key test of public support for the government’s austerity measures. Read “Spain, PM Zapatero on edge as elections loom.”
“If the public show resistance to the cuts, this could unsettle bond investors even further, which would likely weigh on support for the single currency,” she said, in emailed comments.
The British pound GBPUSD +0.0247% traded at $1.6189, up from $1.6149.
Sterling initially spiked after the Office for National Statistics said retail sales volumes jumped 1.1% in April and 2.8% over the same month last year. Economists had forecast a 0.7% monthly rise and a 2.4% year-on-year increase.
The ONS said April was an “unusual month” due to factors that included an added holiday for the royal wedding, the royal wedding itself and the warmest weather for the month since records began.
