But slide could turn into spiral for greenback, strategists say
NEW YORK (MarketWatch) -- The dollar held gains versus major rivals Thursday after weekly initial U.S. jobless claims posted a smaller-than-expected rise.
The Labor Department said 545,0000 Americans filed initial claims for jobless benefits in the latest week, down 12,000. A separate report said housing starts increased to a 598,000 annualized pace in August.
Analysts polled by MarketWatch expected initial claims to rise to 563,000 and housing starts to rise to a 600,000 rate.
The dollar has been on the ropes in recent weeks. Pressure has been tied in part to rising risk appetite, which has seen investors shun the greenback's safe-haven status in favor of equities and other assets.
U.S. stock index futures were flat ahead of the opening bell. European and Asian stocks gained ground. Read Indications.
Analysts also blame low U.S. interest rates, which have made the dollar an attractive vehicle for carry trades that center on borrowing in dollars and then purchasing higher-yielding assets.
"Selling the poor U.S. dollar is the name of the game," wrote strategists at UniCredit MIB in Milan.
The euro traded at $1.4714, down slightly from $1.4729 in North American trade late Wednesday. The euro earlier rose to $1.4766, its highest level versus the dollar in a year.
The dollar index (DXY 76.35, +0.11, +0.15%) , a measure of the greenback against a trade-weighted basket of major currencies, traded at 76.289, up from 76.194 late Wednesday. The index slipped to 76.01, its lowest level in a year, in early trade.
The dollar traded at 91.26 yen, up from 90.84 yen Wednesday. The dollar sank to a seven-month low against the Japanese currency on Wednesday.
The British pound traded at $1.6511, up 0.2%. Sterling trimmed earlier gains after August retail-sales data proved weaker than expected.
The dollar's decline threatens to become "self-fulfilling at a time when foreign purchases of U.S. assets are critical for U.S. funding needs," the UniCredit analysts said.
Economists at BNP Paribas said the dollar's fall "has reached a level where it can become self-feeding via its impact on commodity markets."
The fall in the dollar has provided a lift to dollar-denominated commodities, such as gold and oil.
A similar scenario was seen in the spring of 2008 when oil rallied from $100 a barrel to $148 despite a fall in final oil demand.
"The weak U.S. dollar has put oil back into focus of the carry trade fueled by cheap U.S. dollar funding," they wrote.
Analysts at UBS also attributed the dollar's weakness to rising risk appetite and increasing attractiveness of the carry trade, saying that other arguments, such as excessive money-printing by the Federal Reserve, rising inflation risk, and a growing deficit, provide a convincing explanation for the greenback's 2009 weakness.
They now see the euro ending 2009 at $1.40, up from a previous forecast of $1.30, and 2010 at $1.50, up from a previous forecast of $1.40. The dollar is now expected to end the year versus the Japanese currency at 95 yen, compared to an earlier projection of 100 yen, and 90 yen in 2010, compared to a previous forecast of 95 yen.
