The dollar slipped across the board on Monday as a capital inflows report showed selling of US stocks by foreigners in May, suggesting uneven interest in dollar-denominated assets. In late New York trading, the euro was up 0.2 percent against the dollar at $1.2056, but off earlier session highs of $1.2089 as some investors covered early bets that the inflows data would be much worse than reported.
Against the Swiss franc, the dollar fell 0.1 percent to 1.2936 francs, but was off its intrasession low of $1.2906.
Net inflows of foreign capital into US assets rose to $60 billion in May, more than the amount needed to cover the US trade deficit of $55.3 billion in that month. Most banks had estimated net inflows at between $60 billion and $70 billion.
The downside for investors though was that the Treasury International Capital (TIC) report showed foreigners sold a net $72 million of equities in May after they bought a net $4.67 billion in the previous month. It was the first time foreigners were net sellers of US shares since September 2004.
"Near term, it was dollar positive as it was in line with expectations and the main number printed to cover the trade deficit for May," said Charmaine Buskas, foreign exchange analyst, at West Chester, Pennsylvania-based Economy.com.
"One worrying component was the sell-off in equities that suggests there might be some volatility in the TIC data going forward," she added.
Traders have been closely watching capital flows data since the dollar hit record lows against the euro in late 2004 on concerns the United States may find it difficult to bring in the cash it needs to offset outflows in its current account.
Offsetting some of the negative news on stocks were foreigners' purchases of US Treasury securities which rose to $27.8 billion from $24.69 billion in April.
Following the capital flows data, investors are likely to trade cautiously ahead of testimony on the economy by US Federal Reserve Chairman Alan Greenspan on Wednesday and Thursday.
Many analysts expect the Fed chief to paint a bright picture of the US economy and reinforce support for the dollar with prospects of continued rises in interest rates.
"People will focus on Greenspan and anticipate a fairly ebullient message in terms of ongoing economic strength," said Ian Gunner, head of foreign exchange research at Mellon Financial.
The dollar did manage to trade off the day's lows as some investors covered short positions, betting the greenback would fall, when currency pairs failed to break through key levels after the TIC report, analysts said.
The dollar slipped 0.3 percent against the yen to 111.90 as traders took profits on recent gains. Japanese markets were closed on Monday for a holiday.
"We're seeing some squaring of positions in dollar/yen," said Grant Wilson, vice president for foreign exchange at Mellon Bank in Pittsburgh. "We went right down to 111.50 yen, which was a big support level and it held. We haven't broken down into new territory."
Earlier, premiums on offshore yuan derivatives scaled two-month peaks after a leading government economist said in remarks published on Monday that the yuan's narrow trading band should be widened to 3 percent to help reduce the country's large trade surplus.
Any revaluation of the yuan is expected to have a positive effect on other Asian currencies, like the yen. If China allowed the yuan to strengthen, Japanese monetary authorities would also be more comfortable with a stronger yen. Lower oil prices also boosted the yen, investors said.
Sterling fell 0.2 percent at $1.7481 after weak house price data from British property Web site Rightmove strengthened expectations of a Bank of England rate cut in August.
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