By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The dollar erased a loss against the euro Wednesday as investors continued to keep a nervous eye on Europe’s sovereign-debt woes.
The dollar index DXY -0.13% turned up to 77.009 from 76.925 in late North American trade on Tuesday.
The euro EURUSD -0.29% fetched $1.3697, down from $1.3702 late Tuesday.
Against the Japanese yen, the dollar USDJPY -0.31% bought 76.71 Japanese yen, compared to ¥76.88 in late trading Tuesday.
Currencies fluttered a bit after the U.S. Commerce Department said retail sales were flat in August. Economists had forecast a 0.3% rise in August sales. Read about retail sales.
Earlier, the euro regained its footing versus the dollar as European equities pushed higher. U.S. stock markets also opened in positive territory. See story on European stocks.
But investors remain wary of risky assets due to fears surrounding the euro-zone sovereign-debt crisis, said Chris Walker, strategist at UBS.
The U.S dollar is viewed as a relative safe haven in times of market turbulence and has gained against the euro in recent weeks as prospects for a Greek default have risen.
Attention will turn to a conference call among French President Nicolas Sarkozy, German Chancellor Angela Merkel and Greek Prime Minister George Papandreou, although news reports said a statement after the call wasn’t expected.
The European Central Bank said two banks tapped its dollar-swap facility for $575 million in a seven-day tender. Since banks borrow at a punitive rate of 1.1% from the facility, it may indicate that the institutions had difficulty accessing funds in the interbank market.
But Walker said volatility in the forex market may instead be the primary factor.
“While some have pointed to this as a further sign of funding stress, it is largely due to the large moves in euro/U.S. dollar basis markets over recent weeks,” Walker said.
“Banks will be increasingly tempted to use the facility if current trends continue. However, the very fact that the swap facility is now a cheaper option highlights the recent trend in funding concerns.”
EM currencies catch Europe flu
Also, Chinese Premier Wen Jiabao appeared to play down talk that China was prepared to help shore up Italy’s bond market, saying developed nations should put their own houses in order.
Credit Agricole strategists noted that Europe's struggles to contain its sovereign-debt woes are currently one of the main drivers for the dollar’s performance.
“The underlying mood still feels like a market wondering where the next banana skin for the euro is likely to lie. The idea that the mood on the euro is suddenly about to improve feels rather distant,” Credit Agricole said.
Meanwhile, once-fashionable emerging-market currencies were under heavy pressure Wednesday, signaling that investors remain concerned that Europe’s sovereign-debt woes could spread, said Kit Juckes, head of foreign exchange at Societe Generale.
The U.S. unit rose more than 1% earlier against the Indonesian rupiah USDIDR +0.94% , which traded as high as 9,065 per dollar. The greenback rose 2.6% versus the Korean won to trade at 1,104.35 won per dollar.
The British pound GBPUSD -0.18% traded at $1.5793, little changed from $1.5799 on Tuesday.
