Dollar Gains Narrowly Vs Euro, Yen In Data-Light Session

The dollar is faintly stronger versus its major rivals early Wednesday, but a lack of major data releases is keeping trading muted.


Without any economic reports to guide currency markets, traders are focusing on a dollar-supportive ease in oil prices overnight. However, earnings results from Morgan Stanley (MS) are weighing on U.S. sentiment.


This sideways trading will likely grip the dollar until next week, say analysts, when the market will finally receive a single view on monetary policy and an interest rate decision from the Federal Open Market Committee on Wednesday.


The attention to interest rates has kept the lower-yielding yen under pressure from its crosses. The yen fell overnight to its lowest level since July 2007 against the euro, which rose as high as Y168.05. Against the dollar, the yen is within range of its four-month low struck Monday.


Early Wednesday in New York, the euro was at $1.5497 from $1.5513 late Tuesday. The dollar was at Y108.13 from Y107.96. The euro was at Y167.57 from Y167.53 late Tuesday, according to ECB. The U.K. pound was at $1.9545 from $1.9573, while the dollar was at CHF1.0426 from CHF1.0420 Tuesday.


Given oil's dominance over the dollar's movements, traders are looking toward the release at 10:35 a.m. EDT of the latest U.S. Energy Department oil inventories. Oil traders have said the data will be the key driver for prices, and therefore could swing the buck from its narrow range Wednesday.


Meanwhile, the euro was briefly boosted overnight versus the dollar on a warning from European Central Bank executive board member Juergen Stark that inflation levels remain "unacceptably high." He said that there is a need to check that the current policy rate is appropriate to counter price risks.


That supports the market view that the ECB is likely to hike interest rates at its next meeting in July, which would increase the yield of the euro versus the dollar.


However, other ECB officials recently appeared to be trying to temper the market's tightening expectations, holding down excessive euro gains.


The dollar too was tempered in its advance due to a scaling back of market expectations of interest rate hikes by the Fed, especially after U.S. data releases Tuesday also painted a still strained economic picture.


Elsewhere, the pound remained under fairly heavy selling pressure after the Bank of England signaled Wednesday that although U.K. inflation could rise as far as 4% later this year, the bank is in no position to hike interest rates given the weakness of the U.K. economy and the risk this would pose to financial markets.


Publication of the latest minutes from the BOE monetary policy committee failed to shift sentiment as they showed members voting 8 to 1 to leave rates unchanged, very much as the market expected.


In Shanghai, broad weakness in the U.S. dollar and a fall in the dollar-yuan fixing rate pushed China's yuan to a record high against the U.S. unit Wednesday. Dealers said the dollar will likely consolidate around the psychological support of CNY6.8800 the rest of the week, given its sharp drop against the yuan recently.