The dollar may gain next week as the start of US bank earnings releases will likely keep investors cautious and solidify the greenbacks appeal as a safe-haven investment. Swings in stock prices and risk sentiment should continue to dictate price action in currencies, while a slew of economic data releases are expected to take a back seat, analysts said.
Banks that are scheduled to report earnings next week include Goldman Sachs Group on Tuesday, J.P. Morgan Chase on Thursday and Citigroup Inc on Friday. "These earnings might have a far more important impact on the dollar than the US macroeconomic data," said Paresh Upadhyaya, portfolio manager at Putnam Investments in Boston.
"That will set the tone for equity markets and set the groundwork for what kind of risk environment we might be heading in," he added. "Weve seen a pretty impressive rally in equities and in risky assets as a whole. Theres some room for disappointment."
Upbeat comments from chief executives of several major US banks helped fuel the latest recovery in stock markets, easing demand for the dollar as a haven. Wall Street rallied on Thursday after Wells Fargo said it expects to report a record $3 billion profit for the first quarter. That boosted optimism about the health of the financial sector and rekindled appetite for risky assets.
But caution remains and many analysts said US banks first-quarter results will likely show losses from credit cards and commercial and real estate loans have not yet peaked, dashing hopes that the worst of the banking crisis has passed. "The stock market could be waiting for an opportunity or reason to sell," said Sacha Tihanyi, currency strategist at Scotia Capital in Toronto. "Should that happen, we could see a little more strength...in the US dollar."
The euro last traded down 0.8 percent at $1.3158, and the dollar rose 0.7 percent to 100.40 yen. On the week, the euro lost about 2.6 percent against the dollar, while the dollar was little changed versus the yen.
CONFLICTING FORCES Currency investors will review a wide range of economic indicators next week, including March retail sales on Tuesday, February net capital inflows on Wednesday and housing starts and building permits on Thursday. US inflation data will also be released, with producer prices due out on Tuesday and consumer prices on Wednesday.
The Federal Reserves Beige Book on regional economic conditions will also be released on Wednesday. Robert Blake, senior currency strategist at State Street Global Markets in Boston, said institutional investors have been heavy sellers of dollars recently as risk appetite in the market continues to recover.
Blake expects the dollar to fall against the Australian dollar, saying the latter is "substantially undervalued" and set to benefit from further gains in commodity prices. But hes cautious about calling a bottom in euro/dollar ahead of the European Central Bank policy meeting next month when the bank may decide to adopt non-conventional tools to boost growth a move that he said may push the euro sharply lower.
"There are...conflicting forces battling right now on the dollar," Blake said. "Were hesitant to say that the risk appetite improvement is going to be sustained. There are still lots of concerns over banks balance sheets." The Aussie dollar last traded up 1 percent at US $0.7179 and has gained about 3.7 percent this month.