The US dollar was higher against other major currencies, buoyed by some technically-driven short covering in light trade with the US market closed for the Martin Luther King Jr public holiday today, dealers said. Earlier on the US unit fell to 113.81 yen and 1.2173 usd against the euro with investors concerned about lackluster US PPI and retail sales data released last Friday. But the greenback soon recovered as some short covering emerged with local players moving to buy back the dollar ahead of the release of keenly awaited US CPI and housing starts later this week, they noted.
Foreign exchange players have begun a close watch on US economic data as they try to gauge when the US Federal Reserve may be planning to end its long cycle of rate hikes which propped up the greenback for much of last year. At 1.00 pm Tokyo (0400 GMT) the euro was quoted at 1.2145 usd, compared to 1.2162 in early Sydney trade and 1.2137 in New York latelast Friday. Against the yen the dollar was changing hands at 114.14 from 113.91 in Sydney and 114.27 in New York. While short covering has given the US unit a mild lift, dealers say its recent weak undertone is likely to persist going forward.
"As the perception mounts that the dollar will soon start losing its yield (interest rate differential) advantage against other major currencies amid rising expectations for a near term end to Fed rate hikes the unit will likely remain hostage to the downside, the unit is most likely to remain hostage to the downside," Mizuho Trust and Banking foreign exchange trader Kazuyuki Kato said. "This week, the release of housing starts in the US is likely to hold the key to the near-term direction of the dollar, given growing uncertainty over prospects for the US housing market," he added. "Neverthless, any declines in the dollar are likely to be limited to around 112-113 yen level for the time being," Kato said. The euro eased against the dollar after failing to attract follow-through buying from last Friday, dealers said. "But as the market is gradually gaining confidence in prospects for the euro in the belief that the ECB is moving towards a rate increase mode, the euro will test the 1.22 usd level sooner rather than later," Kato said.