US Dollar steadies after data driven surge

Frankfurt (May 27)  The euro regained a foothold on Wednesday after a week of falls that have pushed the dollar to its strongest in more than a month and revived faith in the U.S. currency's longer term rally.

There have been some signs of improvement in the last few days of data on the U.S. economy, along with comments by U.S. central bankers shoring up expectations that the Federal Reserve can consider raising rates in the second half of this year.

Against those signs, a positive for the dollar, are a disappointing first quarter and other indicators that suggest many major economies are struggling.

Wednesday's pullback, however, looked chiefly like a resetting of positions after the dollar gained more than five cents against the euro in just over a week.

"I would hesitate to put the moves overnight down to any specific event," said Neil Mellor, a strategist with Bank of New York Mellon in London.

"The underlying theme is of dollar strength. Perhaps June has gone out of the window but I think the market is more and more comfortable with the idea that rates will rise later in the year."

The greenback rose 0.6 percent on the day against the yen to a fresh eight-year high of 123.69. A break past its June 2007 peak of 124.14 would take it to levels last seen in late 2002.

The euro recovered 0.05 percent to $1.0885, having fallen to a one-month low of $1.0864 in Asian trading.

All that prodded the dollar index to trade around the flatline at 97.37.

The Australian dollar dropped 0.25 percent to $0.7721, a one-month low. Its New Zealand peer also traded lower at $0.7234.

Angus Campbell, an analyst with retail broker FXPro in London, pointed to concerns over Greece and China as a worry for stock markets and a threat down the line to the Fed.

"Yesterday's pull back in risk assets reminded investors that there remain considerable headwinds that threaten stability in the financial markets," he said. "The slowdown in Asia and beyond is just another reason for forecasters to push back their expectations for the first Fed rate hike."

The United States is likely to press Europe at the G7 finance ministers meeting on Thursday in Dresden, Germany to reach a deal on funding-for-reforms with Greece, an official close to the discussions said on Tuesday.

Source: CNBC