NEW YORK (MarketWatch) -- The U.S. dollar remained lower against major rivals but recovered from a new yearly-low after a handful of reports showed foreign investors sold U.S. assets, but industrial output rose and the current-account deficit shrunk.
The dollar continued to be under pressure also as rising risk appetite among investors has encouraged using the low-yielding U.S. currency as cheap funding to buy higher-yielding assets.
The dollar index (DXY 76.51, -0.03, -0.04%) , a measure of the greenback against a trade-weighted basket of major currencies, fell to a fresh one-year low of 76.187 in the overseas session. It traded at 76.480 in recent action, little changed from late Tuesday in New York.
The dollar bought 90.64 Japanese yen, compared to 91.37 yen Tuesday. Remarks from Japan's new finance minister underscored reluctance to intervene in currency markets to arrest the yen's rise.
The euro traded at $1.4659, little changed from $1.4671 Tuesday afternoon.
"We are still bearish dollars," said Kathy Lien, director of currency research at Global Forex Trading. "Not only is it one of the cheapest funding currencies, but it stands to lose value on both good and bad news.
"If the U.S. economy continues to improve, the willingness of investors to take on risk will ease safe haven flows out of the dollar and resurrect concerns about reserve diversification and the twin deficits," she wrote in an email. "If the pace of improvement in the economy slows, traders may start thinking that the U.S. recovery could trail the other nations," sending the dollar lower as interest-rate differentials favor other countries.
The Treasury Department said foreigners sold $97.5 billion in U.S. assets in July, after a $56.8 billion outflow in June that analysts said was higher than previously reported.
Still, China and Japan -- the biggest holders of U.S. Treasurys -- were net buyers of U.S. assets last months, according to Win Thin, senior currency strategist at Brown Brothers Harriman.
"Bottom line: the big global reserve managers, with the possible exception of Russia, are not dumping U.S. dollar assets on a sustained basis," Thin said. "China and Japan holdings are sometimes volatile on a month to month basis, but the upward trend in U.s. Treasury holdings is unmistakable, despite China's sporadic warnings about the dollar."
Earlier, the dollar was a little lower after the Labor Department said its consumer price index rose 0.4%, a little more than economists expected. Excluding food and energy, CPI rose 0.1%. See more on CPI.
Separately, the Commerce Department said the U.S. current account deficit narrowed to $98.8 billion in the second quarter, or 2.8% of gross domestic product. See more on current-account deficit.
The output of the nation's factories, mines and utilities rose a more-than-forecast 0.8% in August, and was much stronger in July than first estimated, the Federal Reserve said Wednesday.
Still to come, the National Association of Home Builders' survey for September at is set for release at 1 p.m. Eastern time.
