By Lisa Twaronite and William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The dollar lost ground versus most major rivals Tuesday, undercut in part by a warning against excessive U.S. asset holdings by a Chinese official, strategists said.
The dollar index DXY -0.44% , which measures the performance of the U.S. unit against a basket of six currencies, slipped to 73.616 from 73.981 in late North American trading on Monday.
EURUSD 1.4651, +0.0075, +0.5111%
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The euro EURUSD +0.5111% traded at $1.4671 after trading at a one-month high of $1.4682, up from $1.4577 late Monday. See real-time currency quotes and tools.
Remarks attributed to a senior official at China’s State Administration of Foreign Exchange, or SAFE, contributed to the dollar’s softer tone, said Jeremy Stretch, currency strategist at CIBC World Markets in London.
Guan Tao, head of the agency’s international payment department, in an article published on the website of a Beijing-based think tank, warned of the “economic and political risks in excessive holdings of U.S. dollar assets,” according to a Reuters report.
Guan said the U.S. “may find it hard to resist the policy temptation of weakening the dollar abroad and pushing up inflation at home,” the report said. Reuters reported that the article was subsequently removed from the website and that Guan said the comments had represented only his personal view.
Meanwhile, the euro was underpinned by a strong run of data that included an unexpectedly strong 2.8% rise in April German factory orders, exceeding forecasts for a 1.9% rise, and a 0.9% rise in April euro-zone retail sales. Economists had forecast a 0.3% increase.
In addition, traders are increasingly focused on Thursday’s European Central Bank meeting, Stretch said, where ECB President Jean-Claude Trichet is expected to signal that policy makers are prepared to deliver another rate hike in July.
U.S. Federal Reserve Chairman Ben Bernanke’s speech at 3:45 p.m. Eastern may be the key event for markets, but Bernanke is seen as unlikely to signal that a recent run of weaker-than-expected U.S. data represent more than a soft patch for the economy. Read about Bernanke's upcoming speech.
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If Bernanke “sounds particularly concerned about the economy, especially the unemployment rate, then we could see bond yields drop and the dollar fall like a stone, crushing any hopes for a rebound in the greenback,” said Kathleen Brooks, research director at Forex.com, in emailed comments.
“On the other hand, if Bernanke sounds more relaxed about the data then the dollar may find some support after coming under pressure today,” she said. On balance, Brooks said Bernanke is likely to sound a note of caution but say it’s to early to speculate on the need for additional monetary stimulus.
Against the Japanese currency, the dollar USDJPY +0.2154% rose to 80.19 yen from ¥80.14 late Monday.
The British pound GBPUSD +0.3447% rose to $1.6430 from $1.6353.
The Australian dollar AUDUSD -0.15% fell 0.2% versus the U.S. unit to trade at $1.0711. The Reserve Bank of Australia, as expected, kept its benchmark interest rate on hold at 4.75%. In a statement, the RBA said it still views its monetary policy stance as “mildly restrictive.”
The rate has been on hold for seven months. The RBA had aggressively raised rates up until November of last year in an effort to keep inflation in check. Data on the Australian economy has offered a mixed picture in recent months. Read “Australia’s RBA keeps interest rates on hold.”
“Australia may have the highest rates in the G10, but if the RBA has come to the peak of its rate-hiking cycle then this could weigh on the Aussie, especially as other central banks, for example the ECB, start to normalize rates,” Brooks said.
Lisa Twaronite is MarketWatch's Tokyo bureau chief.
William L. Watts is a reporter for MarketWatch in London.
