LONDON (AFX) - The dollar was softer across the board in early trade with the market struggling for fresh direction, having already priced in a modest economic recovery, dealers said.
The market is finding it hard to shrug off the inertia and slightly stronger than expected economic data recently appear to be impotent, Sonja Helleman, currency strategist at Dresdner Bank said. There has been little news or movement overnight, she noted, adding that currency markets are viewing the US move to slap tariffs on steel imports as a side show.
"The Greenspan type modest recovery is already priced in and after that there is not much momentum despite economic data," she said. Perhaps the market has become more skeptical after all the doom and gloom stories, she added.
"It will take something big to move the market now," she said. Richard Grace at West LB said the current discussion whether a speedy economic recovery will widen the US's current account deficit is weighing on the dollar.
"We do not put too much weight to this argument in the short term, but acknowledge that over the long term, it is probably a key factor, particularly if the US current account deficit widens to as much as 6 pct of GDP over the next couple of years," he said. But an economic recovery should lead to a revival in mergers and acquisitions flows, helping the dollar.
"Still, in the immediate term, it may need a significant upward surprise in Friday's labour market data to reverse the dollar's current downward bias," he said.
Little is expected of today's US data. The Fed's Beige Book and Jan factory orders should hardly provide fresh insight on the recovery story after Greenspan's testimony and US durable goods orders set the trend earlier.
"Overall, the data should be dollar neutral," Grace said. He believes the US administration's steel tariffs on imports should have little immediate impact on currencies unless it triggers a full-blown trade war. Such an outcome will be negative for the dollar, he said.
Elsewhere, the morning's German jobless numbers came in better than expected but passed by hardly noticed. Overnight, speculation that Germany may find its credit ratings slashed if the Federal Government starts issuing debt jointly with the federal states, has yet to pressure the euro, Michael Klawitter at West LB said.
Conversely, the German Jan factory orders data should only have some market impact if they are significantly better than expected, he added.
Sterling was little changed despite UK prime minister Tony Blair's hint that the UK currency will be an issue in the euro entry debate.
The yen was modestly higher, reflecting the dollar's soft tone.