The U.S. dollar edged lower on Wednesday as investors adjusted their interest rate outlooks for the United States and the eurozone after conflicting economic data and monetary authorities toned down threats of tighter policy.
Competing central bank rhetoric was likely to make trading conditions more volatile in the days ahead while declining U.S. stock market also helped erode the appeal of the greenback. Traders scrambled to revise downward their expectations of an August Federal Reserve interest rate rise after data this week showed U.S. housing starts plunged to a 17-year low in May.
In late afternoon trade, the New York Board of Trade's dollar index, which tracks the dollar's performance against a basket of six currencies, was nearly slightly lower at 73.419 after rising as high as 73.774 in overnight trade. U.S. short-term interest rate futures are pricing in a roughly 48 percent chance of a 25 basis points Fed rate increase in August, down from 90 percent earlier in the week.
The euro edged higher, or 0.1 percent to 1.5538 after earlier slipping to 1.5463. It remained confined to a $1.5303-1.5552 range in the absence of fresh economic data. The Japanese yen was little changed versus euro after yesterday fall to 168.04 (the lowest since July 23, 2007). The dollar was trading lower and decline to 107.72 and 1.0363 versus Japanese yen and Swiss franc respectively, tracking a fall in U.S. stocks, which were weighed down by a quarterly loss from FedEx Corp. Remarks by San Francisco Federal Reserve Bank President Janet Yellen on Wednesday also suggests the volatility in financial markets was showing signs of easing gave the market little impetus.
The U.S. central bank is widely expected to keep its benchmark fed funds rate target at 2.0 percent next week, having cut it by 3.25 basis points since mid-September to fend off a housing-led economic downturn.
Crude oil for July delivery rose 1.8 percent yesterday to $136.40 a barrel. The price reached a record $139.89 a barrel on June 16. The correlation of the dollar versus the euro and oil prices is minus 0.93 for the past year, indicating they move in the opposite direction 93 percent of the time.
On Wednesday, economic data releases include Japan's all industrial index, Switzerland’s trade data and SNB rate decision (08:30GMT), UK's PSNCR and retail sales data for May, Canada's CPI, and US's jobless claims, leading indicator and Philadelphia survey, which probably increased to minus 10 in June from minus 15.6 the previous month.