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The run of poor numbers, attributed mostly to
winter weather, has lengthened the latest pause in the
currency's rally to almost seven weeks and brought "long" bets
on further gains to their lowest since September.
While that reflects less confidence about any further greenback
gains, it also means more room in trading books for investors to
bet on it again.
Of crucial interest this week will be the U.S. Federal Reserve's
attitude to the weaker data.
"The real problem last week was the lack of anything new to go
on, which probably left us more exposed to the potential for a
correction on the dollar," said Ian Stannard, European head of
FX strategy at Morgan Stanley in London.
"It may be that the market is looking to get back into dollar
longs and I think the extent to which the Fed is prepared to
look through this weaker patch of data will be the important
element this week."
The dollar was up 0.3 percent at $1.0841 per euro. The dollar
index, which tracks the greenback against a basket of six major
rivals, gained 0.2 percent to 97.104.
Richard Benson, co-head of portfolio investments at
institutional currency investment manager Millennium Global,
argued that the structural shift toward the dollar over the past
year has further to go. But he said it might now be more focused
on other currencies than the euro.
"You've had the rally against the yen, the rally against the
euro, now the third leg may be focused on some other currency
plays," he said. "Strong conviction calls would be short the
Swiss franc and short the Aussie dollar."
He said fair value for the euro was probably around $1.15 but it
might fall another 5-10 percent before stabilizing.
Helped at the margins by a cut in Japan's credit rating by Fitch
Ratings, the dollar also gained 0.3 percent to 119.32 yen, still
well below last week's high of 120.10 yen.
The Bank of Japan meets on Thursday, following the Fed's
Wednesday statement, and is widely expected to hold policy
steady. The policy decision, however, might be influenced by the
median inflation forecast produced at the meeting.
While the possibility is slim, BOJ policymakers may opt to ease
if the cut to this fiscal year's inflation forecast is
unexpectedly big, or if they feel the slowdown in inflation is
damaging enough to warrant pre-emptive action.
(Additional reporting by Lisa Twaronite in Tokyo; Editing by Tom
Heneghan)
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