Dol­lar strug­gles as Yellen eyed for di­rec­tion

The Pak Banker - - MARKETS/SPORTS -

The dol­lar lan­guished close to a 31/2-month low against a bas­ket of ma­jor cur­ren­cies on Wed­nes­day, as traders waited for U.S. in­ter­est rate guid­ance from Fed­eral Re­serve Chair Janet Yellen. The cur­rency has shed over 3 per­cent over the past two weeks as ex­pec­ta­tions of a 2016 rate rise have all but van­ished. Wor­ries over slid­ing com­mod­ity prices, a slow­ing China and the health of Euro­pean banks have also damp­ened dol­lar de­mand in fa­vor of safe-haven as­sets such as the yen.

Against a bas­ket of cur­ren­cies the dol­lar was flat at 96.056 .DXY, hav­ing touched 95.663 on Tues­day, its weak­est since Oc­to­ber.

That low rep­re­sented an al­most 5 per­cent de­cline from the 12-1/2 year peak touched in early De­cem­ber, when con­sen­sus was for the Fed to keep rais­ing rates this year, stok­ing a global cap­i­tal rush of funds to higher-yield­ing dol­lar as­sets.

BNP Paribas cur­rency strate­gist Michael Sneyd, in Lon­don, said Yellen - the text for whose con­gres­sional tes­ti­mony is due at 1330 GMT - would be un­likely to pro­vide any kind of re­bound for the dol­lar.

"The most likely is quite a bal­anced as­sess­ment, in which she says the U.S. econ­omy is do­ing well, but ac­knowl­edges that the mar­ket hasn't taken this first rate hike too well and that this has led to a tight­en­ing of mon­e­tary con­di­tions," he said. "It seems we're likely to re­main in this regime where the dol­lar con­tin­ues to lose ground against the euro and the yen."

In times of eco­nomic stress, coun­tries or re­gions run­ning cur­rent ac­count sur­pluses, as are Ja­pan, the euro zone and Switzer­land, are seen as safer com­pared with those that have deficits and rely on for­eign cap­i­tal to fi­nance the gap. The United States, UK and Aus­tralia fall into the lat­ter cat­e­gory.

That ex­plains why the euro has been sup­ported de­spite sur­pris­ingly weak Ger­man in­dus­trial out­put data and a sell­off of Euro­pean bank shares.

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