Dollar steadies after rally, US GDP data awaited

Uncertainty ahead of the Bank of Japan’s two-day policy meeting beginning on Monday capped the dollar versus the yen. — Reuters pic
Uncertainty ahead of the Bank of Japan’s two-day policy meeting beginning on Monday capped the dollar versus the yen. — Reuters pic

TOKYO, July 27 — The dollar steadied today following a rally against its peers overnight, as investors awaited US economic growth data, which could give a fresh catalyst for direction amid a wider focus on global monetary policy and yield direction.

The dollar index, which measures the greenback’s strength against a basket of six major currencies, stood little changed at 94.719.

It had risen 0.4 per cent overnight to pull away from a two-week trough of 94.084 as the euro slid sharply after the European kept to its planned timetable to move away from its accommodative monetary policy.

While the euro’s downturn provided the dollar with a significant lift, the US currency enjoyed support from other quarters as well.

The 10-year US Treasury note yield extended its overnight rise and touched a six-week high of 2.988 per cent as traders braced for a potentially strong reading of US gross domestic product (GDP) data, set for release later today.

The US economy is expected to have increased at a 4.1 per cent annualised rate in the second quarter, following a 2.0 per cent pace of growth in the first quarter.

“The dollar is higher across the board and this reflects the lift it is enjoying from fundamental factors, notably higher US yields and shares amid improving risk appetite,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“The dollar will remain caught between the lift from such fundamental factors and downward pressure from political factors, such as President Trump’s attempts to keep dollar strength in check.”

The euro was virtually flat at US$1.1643 (RM4.74).

The single currency had sunk more than 0.7 per cent yesterday following the ECB’s policy meeting. Taking the wind out of euro bulls’ sails, the ECB said it would stay on course to end its 2.6 trillion euro stimulus programme this year and keep rates at a record low level through the summer of 2019.

The euro earlier yesterday had advanced in relief after the United States and the European Union agreed to begin talks to lower tariffs, soothing trade concerns.

The US currency was 0.2 per cent lower at 110.99 yen , unable to hold gains after rising briefly to 111.25.

Uncertainty ahead of the Bank of Japan’s two-day policy meeting beginning on Monday capped the dollar versus the yen, amid speculation the central bank could mull taking steps to make its massive stimulus programme more sustainable.

The possibility the BOJ may tweak its policy has dominated investors’ attention following reports last week it was looking to make its accommodative policy more sustainable.

Still, the yen’s gains thus far were smaller relative to a similar spike seen at the start of 2018, when speculation the BOJ was poised to begin normalising monetary policy triggered a massive rise in the Japanese currency.

“Upward pressure on the yen stemming from monetary policy concerns is likely to be limited, as it would be difficult for the BOJ to conduct successive when domestic economic activity and inflationary pressures are weak,” said Masafumi Yamamoto, chief strategist at Mizuho Securities in Tokyo.

The dollar was 0.4 per cent lower against the yen for the week, during which it pulled away from a six-month high above 113 yen scaled on July 19.

The dollar’s retreat came after US President Donald Trump expressed displeasure over the currency’s strength and amid speculation that the BOJ could scale back its massive monetary stimulus soon.

The pound was flat at US$1.3113. It had dropped 0.6 per cent overnight as a stronger dollar and mounting uncertainty over Brexit negotiations offset the positive impact of bets on a Bank of England interest rate hike next week.

The Australian dollar was 0.15 per cent higher at US$0.7388, recovering a bit of ground after the previous day’s tumble. The Aussie, often seen as a liquid proxy of -related trades, had fallen 1 per cent yesterday amid a drop in . — Reuters

Source: The Malay Mail Online

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