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FOREX-Dollar hits six-week low as earnings offsets data

Published 07/16/2009, 04:10 PM
Updated 07/16/2009, 04:24 PM
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* Kiwi falls after Fitch cuts NZ outlook to negative

* US Philly Fed data weak; earnings still pose risks (Adds comments, details; changes byline)

By Vivianne Rodrigues

NEW YORK, July 16 (Reuters) - The dollar touched a six-week low against a basket of major currencies on Thursday on strong earnings from JPMorgan, but it came off lows as weak manufacturing data and anxiety about other U.S. bank earnings kept a safe-haven bid alive.

Investors initially sold the dollar for higher-yielding currencies and assets after better-than-expected earnings from JPMorgan Chase boosted hopes for a U.S. recovery, diminishing the greenback's safe-haven appeal.

Another report earlier showing a decline in the number of Americans filing for jobless benefits also lifted spirits.

But the dollar rebounded against most major currencies after another release showed factory activity in the U.S. mid-Atlantic region contracted for a 10th straight month in July.

The mixed data readings combined with trepidation about upcoming earnings reports from Citigroup and Bank of America kept a lid on investor enthusiasm and contributed to volatility on Wall Street throughout most of the trading session.

"The equities markets are moving back and forth and this is being reflected in the currency markets," said Dan Cook, a senior market analyst at IG Markets Inc. in Chicago. "All in all ... any optimism is set off pretty equally by pessimism. After the moves (earlier in the week) traders are thinking it may be time to pull some profit off the board."

An index that measures the dollar against a basket of six major currencies earlier fell to its lowest level since June 4 before rebounding to trade slightly lower at 79.223.

The euro last traded 0.3 percent higher at $1.4145, off a session peak of $1.4165. Sterling was nearly flat at $1.6440 after rising as high as $1.6476 earlier.

Some analysts said the move suggests markets remain cautious despite a string of stronger-than-expected earnings this week from JPMorgan Chase, Goldman Sachs and Intel.

"Tomorrow we have a few banks reporting that can be seen as weaker members of the group, and if they disappoint we could be in for a very ugly day," said Jacob Oubina, strategist at Forex.com in Bedminster, New Jersey.

Against the yen, the dollar fell 0.5 percent to 93.61 yen while the euro and sterling also slipped against the Japanese currency.

REAL ECONOMY, TICS DATA

Some analysts said the breakdown of bailout talks between the U.S. government and CIT Group, a lender to small U.S. firms, was adding to anxiety.

"The financials beat the numbers with very clear help from the government, but when you look at the real economy companies, you're seeing a difficult road for them," said Boris Schlossberg, head of FX research at GFT Forex in New York. "The problems in the real economy still persist."

Elsewhere, the New Zealand dollar fell 0.2 percent to $0.6478 after ratings agency Fitch downgraded New Zealand's sovereign outlook to negative.

Still, there were signs of encouragement. One came from China, where data showed the economy grew 7.9 percent in the second quarter from a year earlier. That beat expectations and boosted hope the world's biggest emerging economy will lead the way out of the worst global downturn since the 1930s.

U.S. Treasury Secretary Timothy Geithner, speaking after a meeting with his French counterpart, cited a "very encouraging" improvement in financial system stability.

Also on Thursday, data showed the United States saw an overall net capital outflow of $66.6 billion in May, a month during which the dollar lost more than 6 percent of its value.

Still, economists said the outflow should not be considered worrisome.

There is "no choice but continue to buy" U.S. assets, Naoki Lizuka, a Tokyo-based senior economist with Mizuho Securities Co., said in New York. (Additional reporting by Steven C. Johnson and Nick Olivari in New York; editing by Leslie Adler)

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