The dollar posted gains on Thursday, as investors felt more confident about the outlook for the troubled financial sector, with US companies' earnings so far generally revealing no major negative surprises. The greenback also got a lift against the euro earlier after a euro zone official said the recent appreciation in the European single currency was undesirable.
The euro had soared to a record just shy of $1.60 before retreating when Eurogroup head Jean-Claude Juncker complained about the currency's strength against the dollar. In the stock market, US equities closed little changed, with the companies reporting earnings on Thursday showing mixed results. For instance, markets reacted positively to Merrill Lynch & Co Inc after it reported subprime mortgage write-downs of $6.5 billion, meeting analysts' expectations.
Optimism on Merrill, however, was offset by cautious outlooks from eBay Inc and United Technologies Corp. "It was a good day for the dollar overall. We are seeing increasing optimism that the worst of the financial system's problems may be behind us," said Ken Landon, global currency strategist at J.P. Morgan Chase in New York.
"We've had earnings reports from financial institutions and there haven't been real ugly surprises. People are now looking forward to the rebuilding process and investors are more active in seeking riskier assets," he added. In late afternoon trade, the euro fell 0.4 percent to change hands at $1.5880.
Traders said a big part of the euro's pullback can be attributed to Juncker's remarks. The Eurogroup chairman also said markets misunderstood a statement last weekend by the Group of Seven that voiced concern over sharp fluctuations in major currencies.
The Eurogroup comprises finance ministers from the 15 countries that use the euro, and some fear an excessively strong currency will undermine growth in the region. The dollar was up about 0.9 percent against the Japanese yen at 102.64 yen and rose 0.8 percent against the Swiss franc to 1.0075 francs.
Earlier, a sharp fall in the Philadelphia Fed's business index for April briefly trimmed some dollar gains, but investors resumed buying the greenback after Dallas Fed President Richard Fisher indicated a reluctance to cut US interest rates. Fisher said an accommodative monetary policy could cause inflation and it is important for the Fed to have a steady hand, not a "trigger finger."
The Fed is still widely expected at its April 29-30 meeting to lower the benchmark federal funds rate target from its current level of 2.25 percent to support an economy struggling under the weight of deep housing and credit crises. That would be in addition to 3 percentage points of cuts it has enacted since September.
Sterling rose 0.9 percent to $1.9903 after a UK Treasury source said authorities could announce as early as next week details of a plan to ease tight conditions in the British mortgage market.
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