By Myra P. Saefong and William L. Watts, MarketWatch
SAN FRANCISCO (MarketWatch) — The U.S. dollar slipped Thursday as the euro regained some lost ground versus the greenback against the backdrop of a well-received Spanish auction of government debt, disappointing U.S. economic data and speculation of a possible downgrade of France’s sovereign debt rating.
The ICE dollar index DXY -0.15% , which measures the U.S. currency against a basket of six other major units, stood at 79.525, down from 79.590 late Wednesday in North American trading. The index touched a high of 79.828 earlier.
“As long as Europe remains the main market narrative, any dollar downside should be held in check,” said Joe Manimbo, senior market analyst at Western Union Business Solutions, in a note.
The euro EURUSD +0.1919% traded at $1.3139, up a bit from $1.3115 late Wednesday.
The shared currency had climbed to a high around $1.3165 after Spain sold 2.54 billion euros of 2- and 10-year government bonds.
The total amount sold exceeded the top end of the government’s planned range: €2.5 billion. Borrowing costs rose, as expected, but demand remained strong, analysts said. Read about Spain’s auction.
Foreign exchange traders also weighed unspecified rumors of a possible downgrade of France’s sovereign debt rating, which triggered a sharp selloff in French government bonds. Read more on the rumor.
U.S. data disappoints
In economic news Thursday, the U.S. Labor Department reported that the number of Americans who filed requests for unemployment insurance last week rose to 386,000, seasonally adjusted, compared with expectations for a fall to 374,000, according to economists surveyed by MarketWatch. Claims from two weeks ago were revised up to 388,000 from an initial reading of 380,000. Read more on jobless claims.
Separately, the Philadelphia Federal Reserve reported that manufacturing activity in the Philadelphia region grew at a slower pace in April, with the bank’s business condition index falling to 8.5 from 12.5 in March. Read more on the Philly Fed.
And existing U.S. home sales fell for a second month, down 2.6% in March, according to the National Association of Realtors. Read more on home sales.
“Despite weaker than expected U.S. economic data, most of the major currencies are trading higher against the U.S. dollar,” said Kathy Lien, director of currency research at GFT, in a note. “The Federal Reserve won’t be happy with the latest reports which show evidence of deterioration in the labor market, the housing sector and manufacturing.”
“The improvement in growth that we saw in the first quarter is fading quickly in the second, boosting expectations that the Fed will take action to prevent a deeper turn in growth,” she said.
Falling yen
Meanwhile, the yen weakened against the U.S. dollar after Japan swung back to a trade deficit in March, with the greenback little-changed against the euro ahead of a keenly awaited Spanish debt auction later in the day.
The greenback USDJPY +0.3563% rose to ¥81.42 from ¥81.21 Wednesday. The rise came after data released earlier in the day showed a trade deficit of ¥82.6 billion in March compared with a surplus of ¥170.9 billion in February, albeit smaller than the ¥223.1 billion shortfall expected in the monthly trade balance by economists. Read more about Japan’s trade balance.
Some analysts said that although the yen has recovered recently from the decline suffered last month amid expectations for monetary easing by the Bank of Japan, further depreciation can’t be ruled out.
“Speculative investors in particular continue to position for [yen] weakness, with positioning close to multiyear lows, and although such investors have been wrong-footed over recent weeks, we believe the bets will eventually pay off,” he said.
The drop also came after Bank of Japan Gov. Masaaki Shirakawa was quoted in reports as saying that the central bank is committed to further monetary easing.
The euro EURJPY +0.5451% , meantime, was buying ÂĄ106.91, compared with ÂĄ106.38 Wednesday.
Among other major currency pairs, the British pound GBPUSD +0.2315% was trading at $1.6053, up from $1.6021 Wednesday.
Myra Saefong is a MarketWatch reporter based in San Francisco.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. V. Phani Kumar in Hong Kong contributed to this report.
