Sterling pressured after larger-than-expected drop in U.K. retail sales
FRANKFURT (MarketWatch) — The U.S. dollar rose versus most major rivals other than the Japanese yen Thursday, finding haven-related buying interest as equities and other assets perceived as risky sold off in the wake of weak purchasing managers’ index readings in China and Europe.
The ICE dollar index DXY +0.29% , which measures the greenback’s performance against a basket of six other currencies—the euro, Japanese yen, British pound, Canadian dollar, Swiss franc and the Swedish krona—rose to 79.828 from 79.654 in North American trade late Wednesday.
The euro EURUSD -0.3827% gave up gains scored in Asian activity to fall to $1.3159 versus $1.3205 on Wednesday, and declined to ÂĄ108.81 versus the Japanese yen USDJPY -0.6949% from ÂĄ110.27.
The slump came after the preliminary Markit composite purchasing managers' index, or PMI, for the 17-nation euro zone fell to 48.7 in March from 49.3 in February, defying expectations for a rise to 49.6. A reading of less than 50 indicates a contraction in activity.
“The market has reacted negatively to the realization that, far from proving supportive, the data is consistent with softening activity,” said Jeremy Stretch, currency strategist at CIBC in London.
Earlier, the dollar rose sharply against its Australian and New Zealand counterparts after preliminary data released by HSBC showed that China’s manufacturing purchasing managers’ index dropped to a weaker-than-expected 48.1 in March, from a final print of 49.6 in February. Read more about the China PMI data.
The Australian dollar AUDUSD -0.81% was buying $1.0369 , compared with $1.0486 earlier in the day.
The New Zealand dollar NZDUSD -0.85% , meanwhile, was fetching 80.77 U.S. cents, compared with 81.55 cents.
The China PMI data, an early economic indicator that reflects trends in industrial output and economic growth, raised worries about the Chinese outlook.
“The reading suggests that manufacturing activity continued to slow in March. We have found a pretty high correlation between the PMI readings and industrial output growth 2-3 months down the line, which suggests weak industrial output though May or even June,” said Dariusz Kowalczyk, a senior economist for Asia excluding Japan at Credit Agricole.
“This may mean that gross domestic product growth will slow noticeably in the [first quarter] and remain soft in the [second quarter],” Kowalczyk said. “Our call remains soft landing this year, and we maintain our 8% GDP growth forecast for 2012, but the PMI readings increase risks of a sharper slowdown.”
However, the greenback depreciated against some other major currencies. It fell to 82.85 Japanese yen USDJPY -0.68% from ÂĄ83.47 in North America on Wednesday.
The yen’s gains against the dollar, meanwhile, came as data released before the Tokyo equity market opened Thursday showed Japan swung back to a surprise trade surplus in February after reporting a deficit in January. Read more about Japan February trade surplus.
The British pound GBPUSD -0.44% , meanwhile, fell to $1.5800 from $1.5865. The Office for National Statistics reported a 0.8% drop in February retail sales volumes. Economists had forecast a 0.4% drop.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau.
