The US dollar gained on Wednesday as persistent concerns about the global economy added to the greenback's safe-haven allure. The euro came under pressure after European Central Bank Governing Council member Axel Weber said the ECB will announce a package of "non-standard measures" in May to boost the euro-zone economy.
Risk aversion returned after US data reinforced expectations that the economy contracted sharply in the first quarter, while the chief executive of Wal-Mart Stores Inc, the world's largest retailer, said he still sees no quick end to the recession. The Federal Reserve said in its Beige Book, an anecdotal summary of economic conditions, that the US economy continued to weaken in March and early April.
The report reinforced existing trends in Wednesday trading. The greenback has benefited from low risk appetite in recent sessions as investors sought shelter in dollar-denominated assets such as US Treasuries. "While today's FX price action is not conclusive as yet, the moves so far are consistent with the view the 'global recovery rally' is due for a correction," said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank in New York.
In late afternoon New York trade, the euro fell 0.2 percent to $1.3221. Against the yen, the dollar rose 0.6 percent to 99.35 yen, well above session lows of 98.15 yen. Concerns about the economy intensified after data showed US consumer prices posted their first 12-month drop in nearly 54 years in March and industrial production slipped further.
"We saw the first negative year-over-year (headline) print in quite a long time. It reinforces the deflationary fears that the Fed has been voicing," said George Davis, currency strategist at RBC Capital Markets in Toronto. "I think it's likely to continue seeing the dollar register some gains." On a slightly brighter note, the New York Federal Reserve Bank said manufacturing activity in New York state contracted less severely in April than March's record tumble.
The ECB will lay out a package of alternative monetary policy measures to boost the economy next month that will stretch into next year, Weber said on Wednesday. He said the measures will be valid for the rest of this year and into next year. "Weber gives FX traders what they've been looking for," said Ashraf Laidi, chief market strategist at CMC Markets in London, in a note.
"Weber left no room for doubt by reasserting inflation risks remained limited, which only further supports the Bank's moves toward increased monetary stimulus." Sterling was the standout performer, jumping to a high of $1.5037 against the dollar as it surpassed the $1.50 mark for the first time in three months. The British pound last traded up 0.6 percent at $1.4987.
The boost came after a report from the UK's Royal Institution of Chartered surveyors indicated that the pace of home price decline in England and Wales was the slowest in a year and sales volumes picked up from record low levels. The provided some hope that the UK housing market may be over the worst.
"The strong RICS survey overnight has boosted sterling. It is higher than it was 12 months ago and people are seeing tentative signs of green shoots in the UK housing markets," said State Street currency strategist Lee Ferridge.