LONDON (AFX) - The dollar held steady in midday trade despite steep falls on U.S. stock markets, while the yen began to show signs of a mild recovery, largely on technical factors, with very little on fundamental news, dealers said.
"The dollar is perversely strong but it is a question of positioning," Chris Furness, economist at 4CAST said. Many investors started the day on short dollar positions, leading to the squeeze later on, he said, adding that the phenomenon could be temporary.
Still to come are the U.S. February retail sales figures which, if stronger than markets estimates, could well work to shore up the dollar. Conversely, a weaker number could dent the U.S. currency, as it could necessitate a more sizeable interest rate cut, dealers said.
In a weekly survey by AFX News, a consensus forecast of Wall Street economists indicated that retail sales will show a rise of 0.4 pct in February compared with the unexpected 0.7 pct gain in January. Excluding autos, however, sales are seen rising 0.2 pct. The yen also got a lift from short positions coming under a squeeze. The Japanese unit came off recent lows against most major currencies despite heavy falls on the Nikkei as well as the country's continued political and economic troubles.
Divang Shah, economist at IDEAglobal.com said the yen's strength is at least in part due to the repatriation of profits amid the very steep falls on the Nikkei.
The euro was softer, although the day's economic data yielded no particular directional lead. Inflation in both Germany and France featured within expectations.
However, some German banks have scaled back their expectations of GDP growth this year to 2.2 pct, putting pressure on the euro/dollar exchange, Shah at IDEAglobal.com said.
The downgrade suggests that the European Central Bank could be behind the curve, as it has repeatedly decided to hold rates until there are clear signs of price pressures easing, he said.
The euro's softer tone and the yen's recovery pushed sterling lower all around.
Elsewhere, the Australian dollar teetered at the edge of the key 0.50 usd mark as hefty falls on global stock markets and slowing growth threatened to knock commodity prices.
"Historical lows are possible. If 0.50 usd goes, then it may fall to 0.48 usd or even 0.45 usd," Shah said.