The U.S. dollar extended gains versus major rivals Wednesday after an expected drop in consumer prices, building on initial gains fueled by nervousness over earnings by banks and other companies.
The U.S. Labor Department said consumer prices fell 0.1% in March, matching expectations. Separately, the New York Federal Reserve Bank's Empire State index of manufacturing activity improved to -14.7 in April from -38.2 in March, indicating that activity continued to weaken but at a slower pace.
The dollar index a measure of the greenback against a trade-weighted basket of currencies, traded at 85.164, up from 84.667 in late North American activity Tuesday.
The euro extended a loss versus the dollar to trade at $1.3171, down from $1.3285 late Tuesday. The dollar rose to 99.37 yen versus the Japanese currency, up from 98.80 yen.
Asian shares ended mostly lower Wednesday, pulled down by financial stocks and a lack of guidance in U.S. tech giant Intel Corp.'s quarterly earnings. Most European shares were also on the defensive after Swiss lender UBS said it will post another big quarterly loss. And U.S. stocks were off to a lower start. Read about UBS.
"The dollar is a tad firmer this morning supported by lower Asian equities, the [first-quarter] loss reported by UBS and lack of earnings guidance yesterday from Intel," wrote strategists at Lloyds TSB.
The dollar has tended to gain ground during periods of economic uncertainty and financial turmoil, benefiting from falling equities as investors flee into dollar-denominated assets. The Japanese yen has benefited from similar flows.
Conversely, rising equity markets and have tended to undercut the dollar and the yen as investors show more tolerance for risk.
The dollar rose versus the Japanese currency to trade at 99.01 yen, up from around 98.80 yen late Tuesday.
The Australian dollar and the New Zealand dollar, which had benefited from increased investor optimism and risk tolerance, were hard hit early Wednesday. A leading economic index for Australia fell in February to its weakest level in more than two decades, pointing to a possible heavy contraction for the nation's economy, according to data released Wednesday.
The Aussie fell 0.6% versus the dollar to trade at 71.91 U.S. cents. The U.S. unit rose 1% versus the New Zealand currency to fetch 1.7310 New Zealand dollars.
The Polish zloty was mixed Wednesday, extending gains versus the dollar but giving back some ground versus the euro. The zloty surged Tuesday after Poland expressed interest in seeking $20.5 billion under a new International Monetary Fund credit line for countries deemed to have strong economic fundamentals. See full story.
The zloty rose 0.5% versus the greenback to trade at 3.2003 to the dollar. The zloty fell 0.2% versus the single currency to trade at 4.232 per euro.
In the euro zone, Axel Weber, the president of Germany's Bundesbank and a member of the European Central Bank's Governing Council, on Wednesday said the ECB has a "bit more leeway" to further lower the main refinancing rate used to provide liquidity banks, but said it shouldn't fall below the 1% level, according to Dow Jones Newswires.
The British pound was little changed versus the greenback at $1.4944. Sterling by data from the Royal Institution of Chartered Surveyors, which indicated the deeply depressed British housing market was beginning to stabilize, strategists said.
The group said its buyers index rose to -73.1 in March from -78.1 in February. While the figure shows that the vast majority of surveyors saw a fall in prices rather than a rise, the reading is the highest in 13 months.
The data comes after a rise in February mortgage approvals and calls by some economists for the post-bubble British housing market to bottom by the end of the year.
Sterling has climbed more than 3% versus the yen, euro and U.S. dollar in April, noted strategists at Brown Brothers Harriman. They cautioned that the currency could run out of steam and is vulnerable to a fall back to $1.4660 if unable to break through the $1.50 level versus the dollar.
U.S. markets will also be watching the release of March industrial production data at 9:15 a.m. Eastern.
Later in the day, the National Association of Home Builders will release its April index.
