Dol­lar sell off ebbs, but on track for weekly losses on Fed out­look

The Pak Banker - - MARKETS/SPORTS -

The dol­lar in­dex re­cov­ered from a five-month low on Fri­day, but was still on track for a third straight week of losses, as in­vestors cut fa­vor­able bets af­ter the Fed­eral Re­serve ap­peared cau­tious about rais­ing rates at a steady pace this year. The dol­lar was flat against the yen, hav­ing hit a 17-month low against the yen on Thurs­day, with traders wor­ried that a sharp rise in the Ja­panese cur­rency would elicit some kind of in­ter­ven­tion from the Bank of Ja­pan.

The dol­lar was trad­ing at 111.25 yen JPY=, off a low of 110.67 plumbed on Thurs­day that was its weak­est since Oc­to­ber, 2014. The euro re­treated from a five-week high of $1.1342 EUR=, but was still on track to gain 1.2 per­cent on the week. All this saw the dol­lar in­dex .DXY trade 0.25 per­cent higher at 95.001, hav­ing fallen to a five-month trough of 94.578 in Asian trade. It was set to end the week 1.2 per­cent lower.

"At th­ese lev­els, the mar­ket is ner­vous about push­ing dol­lar/yen too far lower just in case there is some re­sponse from the BOJ," said Yu­jiro Goto, cur­rency strate­gist at No­mura.

The dol­lar has slid sharply since the Fed­eral Re­serve low­ered its ex­pec­ta­tions for in­ter­est rate in­creases this year at the mid­week Fed­eral Open Mar­ket Com­mit­tee (FOMC) meet­ing. Trea­sury yields have dropped sharply since the pol­icy meet­ing, fu­elling the dol­lar's fall.

"Short-term spec­u­la­tors are lead­ing the ac­tion. They ap­pear to be sell­ing the dol­lar and Ja­panese stocks in tan­dem, try- ing to probe for a bot­tom," said Ka­neo Ogino, di­rec­tor at for­eign ex­change re­search firm Global-info Co in Tokyo. "They are test­ing to see if the trough of the re­cent 110-115 yen range can hold," he said.

The dol­lar's post-FOMC weak­ness against the yen presents a headache for Ja­pan. The coun­try would like to see the yen re­main rel­a­tively weak to sup­port its ex­porters, but the mar­ket thinks Ja­pan has to tread care­fully lest it is ac­cused of en­gi­neer­ing com­pet­i­tive de­val­u­a­tions.

The dol­lar's weak­ness poses a chal­lenge to the Euro­pean Cen­tral Bank, too. The ECB eased ex­ten­sively last week, hop­ing to weaken the euro some­what and boost in­fla­tion. But some banks are al­ready re­vis­ing their euro/dol­lar fore­casts higher.

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