Dollar recovers broadly on favorable U.S. monetary policy view

The U.S. dollar recovered against a basket of major currencies on Thursday on the view that Wednesday's selloff was overdone given the relative strength of the U.S. economy and the Federal Reserve's commitment to tightening U.S. monetary policy.

A disappointing auction of Spanish debt and data showing deflation hit five peripheral euro zone countries in September underscored the relative health of the U.S. economy and the divergence between the Fed's path toward hiking interest rates and the European Central Bank's potential to further loosen monetary policy.

"The market is unwinding some of the moves that we saw yesterday as we come to the conclusion that, even if a Fed liftoff comes a bit later, that still means the U.S. dollar continues to have an advantage relative to most measures," said Martin Schwerdtfeger, currency strategist at TD Securities in Toronto.

The dollar gained traction after hitting a three-week low against the euro and the Swiss franc Wednesday and a more than one-month low against the safe-haven yen.

Analysts said the dollar had upside against the euro since the latest inflation data in the euro zone bolstered the view that the ECB could boost stimulus measures.

While consumer inflation at 0.3 percent was unchanged from Eurostat's Sept. 30 estimate and met market expectations, Greece, Italy, Slovakia, Slovenia and Spain showed deflation in September on persistently depressed household demand.

U.S. Labor Department data showing the number of Americans filing new claims for jobless benefits fell to a 14-year low last week, meanwhile, drove home the view that the outlook for the United States remained positive compared to Europe.

"I still remain pretty confident that the U.S. economy will hold up," said Win Thin, head of emerging markets currency strategy with Brown Brothers Harriman in New York.

Analysts said the dollar's rebound was limited as traders awaited comments from Fed officials Thursday. Philadelphia Fed President Charles Plosser said the market selloff was not yet significant enough to throw off the U.S. economy or to garner a response from the Federal Reserve.

The euro EUR= was last down 0.72 percent against the dollar at $1.2745 after hitting a high of $1.2885 Wednesday. The euro hit an 11-month low against the yen of 134.16 yen.

The dollar was last up 0.06 percent against the yen JPY= at 105.96 yen after hitting a low of 105.21 Wednesday.

The dollar was last up 0.68 percent against the Swiss franc CHF= at 0.9463 franc after hitting a three-week low of 0.9361 on Wednesday. The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.07 percent at 85.085.

U.S. stocks fell again, with the S&P 500 .SPX stock index last down 0.61 percent, while Treasuries yields rose.