By William L. Watts and Lisa Twaronite, MarketWatch
LONDON (MarketWatch) — The U.S. dollar remained weaker versus most major rivals Tuesday, getting only a temporary lift from China’s decision to hike interest rates for the third time since October.
The move appeared to briefly dent investor appetite for risky assets, benefiting the U.S. unit. But while U.S. equity futures trimmed early gains to trade near unchanged, overall risk appetite appeared relatively stable, analysts said.
The People’s Bank of China said it would raise its key lending and deposit rates each by a quarter of a percentage point effective Wednesday.
The dollar index (DXY 77.81, -0.22, -0.28%) , a measure of the U.S. unit against a basket of six currencies, traded at 77.870, down from 77.994 in North American trade late Monday.
The Australian dollar (AUDUSD 1.0149, +0.0016, +0.1579%) bore the brunt of the weakness in the wake of the China decision, slipping to $1.0125 versus the U.S. unit, virtually unchanged on the day, after pressing to just below $1.0200 in earlier activity.
The Australian currency is particularly sensitive to developments in China due to its export sector’s reliance on Chinese demand.
The move failed to slow the euro’s push higher, with the European single currency (EURUSD 1.3649, +0.0064, +0.4712%) rising to $1.3644 from $1.3597 in late North American trading on Monday. See real-time currency quotes and tools.
Remarks late Monday by Yves Mersch, the governor of Luxembourg’s central bank and a member of the European Central Bank’s Governing Council, may have helped sentiment, said Brad Bechtel, managing director at Faros Trading in Stamford, Conn.
Although rising commodity prices are beyond the ECB’s control, policy makers are “obliged to rigorously intervene when this translates into an impact on price stability through second-round effects,” Mersch said in a speech, according to Dow Jones Newswires.
He noted, however, that current inflationary pressures appear to be coming from food prices, “which are temporary.”
A steeper than expected 1.5% monthly drop in German industrial production in December did little lasting damage to the euro. Economists had forecast a 0.3% decline. The German economics ministry said the fall was exacerbated by a 24.1% decline in construction activity amid harsh winter weather.
Some strategists say, however, that negative euro factors remain firmly in place.
“In short, there seems little value in buying the euro at current levels. Instead, we think investors should look to sell the euro on rallies,” said strategists at UBS.
“Stronger U.S. data, risks from debt-laden euro-zone peripheral nations and the ECB disappointing euro bulls by staying on hold could push euro/U.S. dollar back down through $1.30,” they said in a note Tuesday.
The British pound edged lower against the dollar, as investors awaited Thursday’s Bank of England meeting. Most economists expect the central bank to keep its monetary policy unchanged.
Sterling (GBPUSD 1.6072, -0.0036, -0.2235%) traded at $1.6074 compared with $1.6125 late Monday.
Against the Japanese yen, the dollar (USDYEN 82.1300, -0.1900, -0.2308%) bought ¥82.12, slightly down from ¥82.32 late Monday.
On Monday, yields on benchmark U.S. 10-year notes rose to their highest level since May, but then pared the rise late in the day, removing that support from the dollar. Read Bond report for more about Treasury yields.
