British pound mixed after minutes reveal 3-way BOE split on bond buys
By William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The U.S. dollar remained on the defensive versus major counterparts Wednesday, but came off earlier lows after weak U.S. housing data reduced appetite for risk and equities, even as commodities still hang on to gains.
The U.S. unit came off lows after government reports showed U.S. consumer prices rose more than expected last month while construction of new homes fell sharply last month.
The dollar index (DXY 74.99, -0.38, -0.50%) , which measures the U.S. unit against a basket of six major currencies, stood at 75.026 compared with 74.894 ahead of the data.
U.S. stock futures turned lower after the data. But oil futures remained higher after jumping to more than $80 a barrel earlier. Gold futures notched another all-time nominal high around $1,150 an ounce. Read about oil's rise. Read Indications column on U.S. stock index futures.
The dollar has tended to weaken as assets correlated to higher levels of risk, including commodities and equities, have rallied.
The chronically weak dollar had rebounded Tuesday, boosted after European Central Bank President Jean-Claude Trichet backed U.S. Federal Reserve Chairman Ben Bernanke's call for a stronger U.S. dollar.
The bounce was unable to maintain momentum, however.
"Despite the call for a stronger dollar from the heads of the two most powerful central banks in the world, the greenback was unable to extend its gains as traders consider the unit to be the weakest link in the G20 universe and continue to believe that U.S. rates will remain stationary for the better part of 2010," said Boris Schlossberg, head of currency research at GFT.
The dollar slipped versus the Japanese currency to trade at 89.26 yen, down from 89.32 yen late Tuesday. The dollar slipped 0.6% versus the Swiss franc to trade at 1.0118 francs.
The commodity-oriented Australian dollar rebounded 0.3% to fetch 93.23 U.S. cents, while the New Zealand dollar rose 0.1% to trade at 1.3392 per U.S. dollar.
The euro traded at $1.4931, up from $1.4869 in North American trade late Tuesday.
The single currency has repeatedly tested resistance above the $1.50 level in recent weeks only to be turned back.
Michael Hewson, an analyst at CMC Markets, said the push above minor resistance in the $1.4910 to $1.4920 region should allow the single currency to re-target the $1.50 area and previous highs around the $1.5065 to $15070 region. A break below support at $1.4810, however, could signal a deeper correction toward $1.4650, he said.
Euro-zone officials have signaled discomfort with the single currency's recent flirtation with the $1.50 level. A stronger euro makes the 16-nation region's products more expensive to buyers outside the euro zone, underlining worries about the sustainability of the economic recovery.
But while Trichet is the "loudest voice calling for a stronger dollar," he's been accompanied by only a "faint chorus" from other European officials, said Jessica Hoversen, currency strategist at MF Global in Chicago.
In particular, Luxembourg premier Jean-Claude Juncker, who also chairs meetings of euro-zone finance ministers, told reporters Tuesday that Trichet was "perfectly right" to back Bernanke's remarks, but said the euro's level wasn't yet high enough to harm the euro-zone recovery, according to Reuters.
"Trichet's comments clearly have the most potency, but the contrasting comments from other ranking officials make the seas hard to navigate," Hoversen said.
The British pound was flat versus the dollar at $1.6803. The euro rose 0.7% against the pound to change hands at 88.99 pence.
Minutes from the Bank of England's November policy meeting released Wednesday showed that the Nov. 5 decision to boost the central bank's asset-purchase plan by 25 billion pounds ($42 billion) was the result of a three-way split among the institution's Monetary Policy Committee.
Seven members, including Governor Mervyn King, backed the decision to boost the plan to 200 billion pounds. External MPC member David Miles sought a 40 billion pound boost, while Spencer Dale, the bank's chief economist, argued the bank should stand pat at 175 billion pounds. Read more about the BOE's divisions.
Economists said the split decision raised questions about the committee's willingness to further expand the program when purchases run out in February. Expansion of the asset-purchase program, which effectively creates new money that is used to purchase government bonds, has been a weight on the pound.
