The US dollar is widely unchanged against the major currencies this morning. New housing starts rose 17.2%, which was dollar positive, though largely expected by the market.
A recovery in European shares piqued appetite for currencies seen as higher-risk, while the euro extended gains after a strong reading of German economic sentiment.
The dollar did stumble in the overnight session after Russian President Dmitry Medvedev underlined the need for new global reserve currencies before a BRICs summit, which traders took as a signal that Moscow may be looking to cut the share of U.S. assets in its currency portfolio. The comments came after Russian Finance Minister Alexei Kudrin said last weekend that the dollar's status as the world's main reserve currency was unlikely to change in the near term, clouding the market's understanding of Moscow's position.
The underlying current that the USD may lose its status as the main global reserve currency is keeping the USD under pressure.
Meanwhile, yesterday’s comments from Japanese Finance Minister Kaoru Yosano, who stated Japan’s government is confident about the outlook for U.S. Treasuries, continued to support the US dollar against the Japanese yen.
Yosano reiterated his view that the dollar will remain the world's key reserve currency, despite rising calls among some countries to reduce dependence on it. Traders offered limited reaction to the Bank of Japan's upgrade of its economic assessment, which came after the central bank held interest rates at 0.1%.
Risk appetite is back on the table and the euro is once again gaining steam against the USD.
The German think tank ZEW said its economic sentiment surprised markets, with the index rising to 44.8 in June, surging from 31.1 in May. This suggested market optimism that the economy will recover later this year.
The sterling is up nearly a percent on the day after data showing a smaller-than-expected fall in UK inflation fueled expectations that the Bank of England may not need to continue quantitative easing much longer. Additionally, sterling's trade-weighted index hit a seven-month high, propelled as the UK currency rose to its strongest this year against the euro.
Climbing commodity prices had helped the Canadian dollar regain its footing against the USD.
The rise was largely attributed to a weaker U.S. dollar, which fell broadly on Tuesday after Russia said the world needed new reserve currencies in what were perceived to be dollar-negative comments.
The Australian and New Zealand dollars fell to one week lows, giving up recent gains on profit taking, but demand for higher-yielding currencies remain, thus losses were limited.
Further declines in metal prices also weighed down on the Aussie. Australia is the world's leading exporter of commodities such as iron ore and copper so lower metal prices are bad news for the local dollar.
Minutes from the Reserve Bank of Australia's June policy meeting showed the bank saw no "pressing need" to cut rates further but statement offered the Aussie only fleeting support.
The Mexican peso firmed sharply after data showed U.S. housing starts jumped in May, bolstering views that the worst of the recession in the United States may have passed.
The U.S. downturn has driven Mexico into a deep recession, and hopes for a recovery in the country's economy depend on a rebound in the United States, its top trading partner. 80% if Mexican exports as destined for consumption in the U.S.
