The U.S. dollar fell Thursday as investors showed renewed interest in riskier assets on expectations the worst of the steep global recession will soon be in the rearview mirror.
"We've seen some resumption of risk appetite across markets," said Roberto Mialich, a foreign-exchange strategist at UniCredit MIB in Milan.
The dollar index a measure of the greenback against a trade-weighted basket of six major currencies, traded at 84.351, down from 84.573 in North American trade late Wednesday.
Some of the increased confidence stems from the statement issued by the Federal Reserve's policy-making Open Market Committee Wednesday. The FOMC said the economic outlook had "improved modestly" and announced no changes in its plan to buy Treasurys or other securities as part of its massive effort to keep credit flowing to the economy.
While the statement was far from a glowing endorsement of the economy's prospects, currency markets tend to react more to perceived "inflection points" in the global economy rather than "confirmation of news itself," wrote strategists at Standard Chartered Bank.
"Markets may need much more concrete signs of bad news in the near term to outweigh the quiet confidence that the Fed has expressed," they said, in a research note. "Risky currencies may well catch a bid in the coming days, to the detriment of 'safe haven' currencies such as the U.S. dollar and the Japanese yen."
Positive sentiment remained intact despite a report in The Wall Street Journal that talks between Chrysler and the U.S. Treasury broke down. That makes it all but certain the automaker will file for bankruptcy protection. See full story.
Markets also shrugged off the World Health Organization's decision to raise its alert level over swine flu to five on its six-point scale, indicating that the probability of a pandemic is high. See full story.
As expected, the Bank of Japan on Thursday left official interest rates unchanged and reduced its expectations for economic growth in fiscal year 2009 as exports continued to suffer from the weak global economy. The central bank also said it expects overseas economies to start recovering the latter half of the fiscal year. See full story.
The greenback rose against the Japanese currency, buying 98.20 yen, up from 97.54 yen late Wednesday.
Equity markets finished higher in Asia and were on the rise in Europe. See Europe Markets.
U.S. stock index futures were higher, pointing to a higher open on Wall Street. Read Indications.
The euro bought $1.3266, little changed from the level seen in late North American trade Wednesday. The single currency had pushed as high as $1.3383 in earlier action.
Mialich said profit-taking ahead of a three-day weekend for much of continental Europe likely trimmed gains for the single currency, but said the ability to hold support at key levels above $1.32 showed traders remained eager to buy on dips.
The euro has the potential to test the $1.35 to $1.36 level in coming days, he said.
Ideas the European Central Bank will decide next week to refrain from engaging in quantitative easing when policy makers meet next week have also provided a floor for support, he said.
Meanwhile, unemployment in the euro zone rose to 8.9% in March from 8.7% in February, the statistics agency Eurostat said.
Eurostat also estimated that annual inflation in April continued at a record-low pace of 0.6% in April, unchanged from the previous month and well below the ECB's target of near but just below 2%.
The British pound rose 0.4% against the dollar to $1.4806.
The typical British house price declined by a seasonally-adjusted 0.4% in April, according to Nationwide's monthly survey Thursday, after posting a 0.9% monthly increase in March. See full story.
British consumer confidence posted its third monthly rise in April, continuing a slow rebound from an all-time low notched last summer, market research firm GfK NOP reported Thursday. See full story.
The New Zealand dollar fell after the nation's central bank cut its official cash rate by a half point to a record low of 2.5% and said it expects the rate to remain at or below the current level until late 2010. See full story.
The U.S. dollar rose 1.1% to buy 1.7618 New Zealand dollars.
