The U.S. dollar edged higher Thursday, but not before paring much firmer, broad-based gains against major rivals, following comments from President Donald Trump that indicated that he wasn’t “thrilled” with the Federal Reserve’s interest-rate hikes—remarks that raised questions about the ability of the currency to strengthen further in 2018.
“Because we go up and every time you go up they want to raise rates again. I don’t really—I am not happy about it,” said the president. “But at the same time I’m letting them do what they feel is best.” He added, “But I don’t like all of this work that goes into doing what we’re doing.”
Trump’s statements were part of a CNBC interview to be aired in its entirety on Friday at 6 a.m. Eastern Time, an excerpt of which was released on Thursday. The ICE U.S. Dollar Index
DXY, +0.05%
which measures the buck against a basket of six other rivals, was up 0.1% at 95.163 late in New York trade, but had been up 0.4% before the CNBC interview release around 1 p.m., which briefly saw the gauge fall into negative territory.
For the week, the dollar gauge is up 0.4% and 3.3% thus far this year, rallying amid global interest-rate differentials that have favored appetite for the dollar and assets backed by the unit. The Fed has raised rates seven times since late 2015, most recently in June. Two additional hikes have been penciled in for the remainder of the year, according to the central bank’s “dot plots,” an estimate of interest-rate projects by Fed members.
The vast majority of the buck’s future will hinge on how much further it trades above a key technical level at 95, market participants said. It hasn’t been above 96 in about a year.
Earlier in the week, supportive comments Fed Chairman Jerome Powell and the central bank’s Beige Book report gave the dollar more fuel. Adding to the positive backdrop was Thursday’s jobless claims figures, which showed claims at their lowest level since December 1969.
Read: Oaktree Capital’s Marks warns of late-stage U.S. economy
But even after the afternoon drop, the greenback remained stronger against its emerging-market rivals. In China, the yuan hit roughly 12-month low, while the difference between the more restricted onshore yuan and more freely trading offshore yuan widened. That suggested greater pessimism among foreign traders, some said. The yuan was one of the worst-performing, emerging-market currencies on Thursday.
China’s currency has been slammed by escalating trade conflicts with the U.S. But the weakening of the yuan is also raising expectations that the People’s Bank of China could ease its monetary policy, which would weigh on its currency.
On Thursday morning, the PBOC set the dollar’s daily reference rate at 6.7066 yuan, weakening the yuan by 0.2%. The central bank allows the currency pair to move as much as 2% above or below that level onshore, while trading in other financial centers is unrestricted.
The currency fell as much as 0.8% to 6.7755 per dollar in the mainland
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and by 0.6% in the Hong Kong offshore
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market to 6.7875 yuan per dollar, both levels not seen since July 2017.
Elsewhere, the British pound extended its weakening trend, as another round of U.K. data raised doubts for a summer interest-rate hike, as had been previously expected by market participants.
As for sterling
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it slumped to an intraday low of $1.2958, hitting its lowest dollar level since early September last year after a disappointing reading on U.K. retail sales in June. Sales fell 0.5% month-on-month, missing forecasts of a 0.3% rise. The quarterly data, however, painted a rosier picture, with sales up 2.1% in the second quarter—the largest increase since February 2015, according to the Office for National Statistics. The pound last fetched $1.3014.
The mixed report comes after June inflation numbers out Wednesday missed forecasts, coming in at 2.4% versus the 2.6% expected. The disappointing readings raised questions as to whether the BOE will hike rates at its Aug. 2 meeting, which currency markets were at one time all but assured would happen.
The BOE “now finds itself in a position were the most recent data hasn’t been great and Brexit talks are not progressing as hoped, meaning it would make far more sense to hold off until November, something that would likely result in another backlash against the policy of forward guidance,” said Craig Erlam, senior market analyst with Oanda.
“While holding off would make sense, there is clearly a view in the markets that this will not happen and the central bank may stick to plans to hike in two weeks,” said Erlam. “Despite numerous setbacks this week, a hike is still currently 68% priced in and after initial selling, the pound is showing some resilience and holding above 1.30 against the dollar. It seems traders are awaiting any hint from the BOE that plans have been put on hold again, at which point the resilience will likely break and possibly aggressively.”
Source : MTV
