By WILLIAM L. WATTS And CARLA MOZEE
The U.S. dollar gave up small gains after a weaker-than-expected rise in July housing starts, leaving the currency on track for a flat weekly performance.
Traders continue to eye Treasury yields and gauge the likely timing of a Federal Reserve decision to begin slowing the flow of monetary stimulus to the economy.
The ICE dollar index, which tracks the unit against six major rivals, slipped to 81.15 in recent action, down from 81.163 late Thursday and from a level near 81.248 just ahead of housing data. The Commerce Department showed construction on new U.S. homes rose 5.9% in July to a seasonally adjusted rate of 896,000. Economists had forecast a rate of 915,000.
"Today's report shows that the recent spike in mortgage rates is indeed slowing the housing market, however, an optimistic take on recent data would suggest the hit being taken isn't nearly as bad as some had feared—at least not yet," said Dan Greenhaus, chief global strategist at BTIG.
The index was on track for a flat finish for the week.
Meanwhile, other data showed U.S. productivity rose at a 0.9% annual rate in the second quarter, topping expectations for a 0.7% rise.
The WSJ Dollar Index, which uses a slightly wider comparison basket than the ICE index, fell to 73.43 from 73.48.
The dollar continued a seesaw session versus the Japanese yen, recently fetching ¥97.42 compared with ¥97.38 late Thursday and ¥97.52 ahead of the U.S. data. Still, the dollar is set for a 1.1% weekly rise versus the Japanese currency.
The dollar swung wildly on Thursday as data rolled in showing mixed economic conditions in the U.S.
The Fed has said it would reduce asset purchases if the economy continued to improve within its projections, and less bond-buying by the Fed is seen as supportive for the greenback.
About two-thirds of economists expect the Fed to start reducing the size of its bond-buying program—currently at $85 billion a month—in September, Brown Brothers Harriman said Thursday.
"The risk is that many are putting too much emphasis on some indications of improvement in the labor market and not giving due the broader economic context, and, just as importantly, the lack of price pressures," wrote BBH currency strategists led by Marc Chandler.
The dollar on Thursday had risen after weekly U.S. jobless claims in the week ended Aug. 10 fell by 15,000 to 320,000, the lowest level since October 2007. Also, consumer prices slightly moderated in July.
But the dollar turned lower after weaker-than-expected reports on regional manufacturing activity and an unexpectedly flat reading for July industrial production.
The euro rose to $1.3354 compared with $1.3346 late Thursday.
The Fed's exit from providing stimulus should support the dollar in the medium term, said Danske Bank, DANSKE.KO +2.17% which also forecast the beginning of a "strong-dollar trend by mid- to late-2014."
However, "the currency market is mainly driven by short-term rate differentials, and since the U.S. money-market curve is unlikely to steepen near-term, we see good arguments for [the euro] to range-trade through 2013," wrote Danske Bank senior analyst Kasper Kirkegaard on Thursday.
Danske now foresees the euro/dollar pair trading at $1.31 in three months, up from a previous projection of $1.28, and at $1.28 in six months. It kept its 12-month outlook unchanged at $1.25.
Meanwhile, the British pound bought $1.5634 compared with $1.5640 late Thursday. Sterling on Thursday rose above $1.56 for the first time since mid-June, according to FactSet. The pound was on track for a weekly gain of 0.8%.
The Australian dollar bought $0.9198 from $0.9143 late Thursday. The Aussie was facing a loss of less than 0.1% for the week.
