Dollar firms near 15-month low
The greenback edges higher but remains weak as investors seek higher-yielding assets and bet interest rates will stay low for a long time.
NEW YORK (CNNMoney.com) -- The dollar recovered some ground against rival currencies Wednesday after falling to a 15-month low on strong economic data from China and signs that U.S. interest rates will remain low.
The dollar index, (DXY) which gauges the greenback's value against a basket of currencies, was up 0.1% to 75.10.
The rebound came after the dollar failed to sink below certain technical levels against the euro. The greenback gained 0.2% versus the euro to $1.4961 after hitting a low of $1.5048.
The British pound fell broadly after Bank of England governor Mervyn King said his nation's economy faces a difficult recovery and hinted the central bank could buy more U.K. bonds.
The dollar rose 1.2% against the pound to $1.6547.
"We're seeing profit taking across the currency market," said Kathy Lien, director of currency research at Global Forex Trading. "It's a relatively quite trading day and the moves aren't big enough to call it anything else."
The dollar came under pressure early Wednesday after the Chinese government said factory output surged to a 19-month high in October, suggesting the world's third-largest economy has regained its footing.
"The developments out of China are encouraging a more optimistic view of the economy," said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.
The bullish economic news boosted the market's appetite for higher-yielding assets such as stocks and commodites, and undermined the dollar's safe-haven appeal.
The greenback was also hurt by recent comments from Federal Reserve officials on Tuesday that suggested the central bank expects the U.S. economy to recover at a sluggish pace.
That reinforced a widely held expectation in the market that U.S. interest rates will remain at historic lows near zero.
Investors are also betting the Fed will keep rates low given the bleak outlook for the U.S. labor market. The government said last week that the nation's unemployment rate rose to 10.2% in October.
"Given last week's disappointing labor market report and the Federal Reserve's plan to keep monetary stimulus in place for the foreseeable future, there is little reason for traders to pile back into U.S. dollars," said Lien.
As the global economy stabilizes and overseas central banks move to raise interest rates, many analysts say the dollar has become a funding currency for the carry trade.
The carry trade, in which investors use the currency of a country with low interest rates to fund investments in more risky markets, has helped push the euro and the Australian dollar higher.
Meanwhile, the currency market largely overlooked comments from Treasury Secretary Tim Geithner in support of a stronger dollar.
"I believe deeply that its very important to the United States, to the economic health of the United States, that we maintain a strong dollar," Geithner said in a meeting with Japanese reporters at the U.S. embassy, according to Reuters.