The dollar rose versus a basket of six major currencies on Friday, boosted after Citigroup reported a smaller-than-expected second quarter loss, calming some jitters on US financial sector health. Citi, the biggest US bank, reported a second-quarter loss per share of $0.49, smaller than forecasts of around $0.61-67.
It took credit costs of $7.2 billion, lighter than some estimates of around $9 billion. As well as injecting fresh impetus into the dollar, the results saw stock markets move into positive territory and European government bonds hit session lows, with financial sector sentiment soothed slightly by some forecast-beating earnings this week.
"As far as the tone in the equity market is concerned, results in the financial sector were not as bad as expected which has provided the dollar with some support," said Ian Stannard, senior currency strategist at BNP Paribas.
The dollar also benefited from sharp falls in sterling after the Financial Times reported the UK Treasury is working on plans to change its fiscal rules. This could effectively give it more leeway to increase borrowing as a way of mitigating the effects of anticipated economic slowdown. See.
By 1112 GMT, the dollar index, which tracks its performance against a basket of six major currencies, was up 0.2 percent at 72.184, but still within sight, however, of the record low of 70.698 hit in March after the Federal Reserve co-ordinated J.P. Morgan Chase's take-over of Bear Stearns.
Sterling was down 0.3 percent at $1.9949, even though the UK Treasury dismissed the FT report as "pure speculation." The euro fell 0.1 percent to $1.5838, and the dollar was up 0.3 percent against the yen at 106.63 yen.
US stock futures were called to open higher, while European stocks rallied to trade up 0.4 percent on the day. Equity market sentiment, and by extension dollar sentiment, had been dented overnight as disappointing after-the-bell earnings from tech giants Google and Microsoft painted a gloomy picture of the US economy.
The Wall Street Journal also reported on Friday that battered US mortgage giant Freddie Mac is considering raising capital by selling as much as $10 billion in new shares. See. Despite the boost from some corporate earnings, dollar sentiment was still looking quite shaky, given concern over the US financial system and bleak growth prospects due to the slumping housing market.
Data on Thursday showing a contraction in July factory activity in the US Mid-Atlantic region was the latest evidence of the economic problems there.
"The situation for the dollar near-term is still quite negative. The macro-economic implications of the financial market turmoil to date have not really been borne out of the US data, because of the huge fiscal stimulus plan that has kept the economy from sinking," said Derek Halpenny, senior currency economist at BTM-UFJ in London.
"That's going to fade now and over the next couple of months we will see that come through in the data. That will keep the market in a fragile state, and that suggests there is still more potential for the dollar to slide again," he added. Another focus for currency traders, meanwhile, is the oil price, which until this week had maintained a close inverse correlation with the dollar.