Friday 29 Mar 2024
By
main news image

LONDON (Aug 28): The dollar held steady against a basket of major currencies on Friday as a sense of calm returned to financial markets, capping off a tumultuous week when the greenback hit seven-month lows against the euro and the yen.

The dollar was also benefiting from upbeat US data which has bolstered bets that the Federal Reserve could raise interest rates at the end of this year. Besides, month-end rebalancing flows are likely to support the dollar, traders said.

The dollar index was at 95.654, off a one-week high of 96.031 set on Thursday. Since diving to a seven-month trough of 92.621 on Monday, the index has recovered more than 3%.

Against the yen, the greenback bounced above 121, a remarkable recovery from Monday's seven-month low of 116.15. It last stood at 121.05 yen. The yen gave a muted reaction to data showing Japan's inflation fell to 0%, the lowest in two years.

The euro was trading at $1.1280, having been knocked off its lofty perch above $1.1700 hit on Monday when global stock markets were caught in a tailspin and investors unwound euro-funded carry trades.

Lifting the spirits of dollar bulls, data showed the US economy grew faster than initially thought in the second quarter, an outcome that kept the chance of a US interest rate hike this year on the table.

"Coupled with the stabilisation in global risk appetite, the market now again entertains the idea of a potential Fed rate hike this year in December," said Petr Krpata, currency strategist at ING.

He said Friday's focus was on the August University of Michigan Confidence index after influential Fed policymaker William Dudley's reference to it earlier in the week.

"A solid number should underpin the bullish dollar trend of the past days and further support the currency against the euro and the yen."

The market will also be keenly waiting for more comments on policy normalisation from Fed officials attending the Aug 27–29 Jackson Hole Economic Symposium. Expectations for a September move have dwindled after a few Fed officials sounded a bit more cautious, citing global market turmoil and slower Chinese growth.

In Europe, some of the focus will be on German inflation data and any signs of disinflation is likely to add to pressure on the European Central Bank to either increase its asset buying programme or extend it beyond September 2016.

"Contrary to the situation on the other side of the Atlantic ... the ECB is doing absolutely everything apart from thinking about a rate hike," said Lutz Karpowitz, currency strategist at Commerzbank.

"Things will only get interesting for the FX market once it becomes increasingly clear that the ECB will extend its bond purchasing programme beyond September 2016."

 

      Print
      Text Size
      Share