Dollar edges down, European inflation data lift euro

THE dollar started the week on the back foot yesterday, as solid European inflation data lifted the euro and continuing tensions with North Korea underpinned the perceived safe-haven yen.

The dollar index, which tracks the greenback against a basket of six rival currencies, edged down 0.1% to 98.963.

Against its Japanese counterpart, the dollar slipped 0.2% to 111.33.

The dollar touched a session high of 111.72 yen on Friday, within a few ticks of last week’s nearly four-week high of 111.78 hit on April 26.

US Labour Department data on Friday showed private wages and salaries accelerated 0.9% in the first quarter to mark the largest increase in 10 years, suggesting the US Federal Reserve might still hike interest rates two more times this year.

The firm wage growth helped offset other data that showed the US economy grew at its weakest pace in three years in the first quarter as consumer spending almost stalled.

“Dollar/yen is holding up, despite the weaker US GDP,” said Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo.

“But there’s geopolitical risk lingering here, so it will probably trade with a heavy tone,” he said, as market participants continued to watch for any developments with North Korea.

On Sunday, US President Donald Trump increased diplomatic contacts with allies in Asia to secure their co-operation to pressure North Korea on its nuclear bomb and missile programmes.

Tokyo markets will be closed for three days from tomorrow for a string of holidays known as Golden Week, and many investors take additional time off. Liquidity is likely to be thin in Asian trading.

The Fed will meet tomorrow, with no policy changes expected this month, while the US employment report for April will be released on Friday.

The euro edged up 0.1% to $1.0906, underpinned by solid euro zone inflation figures on Friday that analysts said could prompt the European Central Bank (ECB) to take a more hawkish stance in its June statements.

Official flash estimates put euro zone inflation at 1.9% in the first quarter, above estimates for a rise of 1.8%. The ECB’s target is below but close to 2%.

Euro short positioning eased in the week ended April 25, after independent centrist Emmanuel Macron came out ahead of anti-European Union rightist Marine le Pen in the first round of the French election last weekend. – Reuters