The US dollar recovered to trade higher against the euro and yen late Thursday afternoon in a volatile session that saw the US currency swing between gains and losses. The move higher came after John Williams, president of the Federal Reserve Bank of San Francisco, said the US Federal Reserve could begin easing up on the monetary gas pedal this summer and end its bond buys late this year.
His remarks offset the negative sentiment earlier in the global day from a deluge of US data that highlighted vulnerabilities in the world's largest economy and curbed expectations that the Federal Reserve will scale back its bond-buying program any time soon. "Williams' remarks are taken as meaning less stimulus, which is good for the dollar, but not good for stocks or the euro," said Kathy Lien, managing director at BK Asset Management in New York.
The euro slipped 0.1 percent to $1.2876, but above the six-week low of $1.2842 touched on Wednesday, when data showed the euro zone's economy contracted for a sixth consecutive quarter. The dollar rose 0.1 percent against the yen to 102.31 yen. On Wednesday, the dollar touched a peak of 102.76 yen, its strongest since late 2008, according to Reuters data. "It will take further gains to convince me that the 'substantial improvement' test for ending our asset purchases has been met," John Williams, president of the Federal Reserve Bank of San Francisco, said in remarks prepared for delivery to a luncheon sponsored by the Portland Business Journal.
But assuming that the labour market, which Williams called "considerably" improved, continues to strengthen, he added: "We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer. Then, if all goes as hoped, we could end the purchase program sometime late this year." Earlier, the dollar was hurt by data showing the number of Americans filing new claims for unemployment benefits climbed last week to the fastest pace in six months, raising concerns about government austerity measures.
The Fed has made it clear that monetary policy will remain accommodative until they see broad and sustained growth in jobs, but the dollar did recover against the yen and pare losses against the euro. "The dollar was on an uptrend headed into today's number, mostly due to an optimistic view of the US economy," said Vassili Serebriakov, FX strategist at BNP Paribas in New York.
Dollar losses accelerated in mid-morning in North American trade after a survey showed factory activity in the US mid-Atlantic region contracted in May as new orders fell to their lowest level in almost a year. Dallas Federal Reserve Bank President Richard Fisher said a slowdown in US inflation was benign and could "unleash" consumer spending, Fisher said, adding that he was not worried about the risk of deflation. Traders said investors were eager to buy dips in the dollar, which was expected to gain further, while the yen continued to weaken following April's aggressive Japanese monetary easing.