RTTNews - The dollar enjoyed a respite on Wednesday after suffering severe losses over the past few weeks, as traders expressed caution that the recent run-up in stocks may have been a bit overdone.
Optimism about a global recovery has fueled gains among equities and renewed interest in riskier, higher-yielding currencies of late. The dollar has seen particular weakness against the sterling and euro, as well as resource-linked currencies, which have been boosted by soaring commodities prices.
However, on Wednesday, the markets took a more sober outlook about the economy, noting that higher commodities prices and the specter of inflation could still snuff out any economic expansion before it gets going.
The dollar improved to 1.4121 versus the euro after setting a 5-month low of 1.4348 overnight. Still, since mid-May, the buck has dropped almost 10 cents.
Wednesday, a first estimate released by the Eurostat showed that the euro area contracted 2.5% in the first quarter from the fourth quarter. This was the largest decline since records began in 1995. The statistical office confirmed the initial estimate for the first quarter. The decline in the fourth quarter was 1.8%.
The dollar also firmed up versus the surging sterling, rising a whopping 4 cents to 1.6258 from a 6-month low near 1.6650. The buck, which has moved well away from January's 23-year high of 1.3501, is unlikely to fall much further versus the sterling without solid evidence that an economic recovery is right around the corner.
The dollar continued its run of choppy trading versus the yen Wednesday, holding near 96. The pair has shown a lack of direction for the past few weeks, with traders expressing interest in riskier assets.
The price of oil pulled back sharply on Wednesday, slipping toward $65 after looking like it would crack $70 yesterday. Subsequently, the dollar rose sharply versus the petro-linked loonie, rebounding to 1.1100 form last week's 7-month low of 1.0782.
Federal Reserve Chairman Ben Bernanke told the House Committee on the Budget Wednesday that the economic contraction may be slowing, although there will likely be a significant increase in job losses and unemployment in the next few months. He also warned of the potentially dire consequences of allowing the deficit to remain high, and called on Congress to consider long-term steps for fiscal balance.
Meanwhile, private sector employment experienced another notable decline in the month of May, according to a report released by Automatic Data Processing, Inc. (ADP) on Wednesday, with the decrease in jobs slightly exceeding economist estimates.
The report said non-farm private employment fell by 532,000 jobs in May following a revised decrease of 545,000 jobs in April. Economists had expected a decrease of about 525,000 jobs compared to the decline of 491,000 jobs originally reported for the previous month.
For comments and feedback: contact firstname.lastname@example.org