The US dollar rose slightly on Wednesday and earlier touched its highest against the euro since January, on growing expectations the US economy would outperform that of Europe. The dollar briefly extended its gains versus the euro after a government report showed US factory orders rose more than expected in July, adding to signs of resilience in the US economy.
The data "fills in the picture of a moderately recovering US economy," said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey, referring to US factory orders data. "All in all, it will provide the dollar with longer-term support."
In contrast, euro zone data on Wednesday underscored a weakening economy in the region. Retail sales in July fell and other reports confirmed the euro zone economy shrank in the second quarter, its first quarter-on-quarter decline since the data series began in 1995.
In late afternoon trading in New York, the euro was 0.1 percent down at $1.4505, after hitting a low of $1.4386 in intraday trading, its lowest since January 22. The ICE Futures US dollar index, which tracks its performance against a basket of six major currencies, jumped earlier to an 11-month high of 78.651, before pulling back to trade little changed at 78.019.
Sterling fell as low as $1.7669, crashing more than a full cent to its lowest since April 2006, before recovering slightly after data showing an improvement in the UK services sector. The pound last traded down 0.3 percent at $1.7773. A further drop in oil prices, which tumbled this week after Hurricane Gustav left energy facilities in the Gulf of Mexico mostly unscathed, also benefited the US currency. Oil last traded down 0.3 percent at $109.41 a barrel.
Analysts said investors were increasingly getting on board with the greenback as a safer place to allocate cash compared with currencies whose countries were further behind in terms of economic readjustment in the wake of the global credit crunch. "It's clearly a strong dollar story that continues this week," said Vassili Serebriakov, a currency strategist at Wells Fargo in New York. "We're still continuing to see liquidation of many remaining US dollar shorts."
A Federal Reserve report on regional economic conditions had limited impact on the markets. The Fed's anecdotal Beige Book showed economic activity has been slow across the United States in recent weeks, but there has been some relief from high commodity and energy prices. The European Central Bank and the Bank of England will issue separate interest-rate decisions on Thursday and both are expected to keep rates on hold.
The ECB has long said its main concern is taming inflationary pressures and that it will tighten policy if price risks remain high. But analysts say an increasingly bearish growth view may spur speculation of a possible rate.
Elsewhere, suspected dollar-selling intervention by South Korean authorities lifted the won from a four-year low on Wednesday, but they may not have done enough to stem the slide in Asia's worst-performing currency this year. The won recently traded down 1.5 percent at 1,147.90 versus the US dollar.