MW: Dollar reverses some of Friday’s gains against euro
The dollar weakened against the euro Monday, retracing gains from last week that were driven by a renewed focus on the risks of higher U.S. interest rates as worries about an imminent Greek exit from the eurozone and market chaos in China receded.
Dollar bulls were encouraged by Federal Reserve Chairwoman Janet Yellen, who reiterated in testimony before Congress last week that the Fed could be expected to raise interest rates this year if economic data continued to improve.
Higher interest rates would increase the yield on dollar-held deposits, attracting more foreign flows to the currency. Higher rates would also compress the interest-rate gap between the dollar and other higher-yielding currencies, making it relatively more alluring.
The buck also benefited from last week’s report on U.S. consumer-price inflation that showed the first year-over-year rise in inflation since December.
The ICE U.S. dollar index DXY, +0.03% , a measure of the dollar’s strength against a basket of six currencies, rose 0.04% Monday to 97.8910. The index finished Friday’s session at its highest level in three months.
For the first time since early June, the opening hours of currency trading were subdued as Greek banks reopened and Chinese stocks traded in a narrower range.
With little important economic data expected this week, traders have shifted their focus back to the theme of monetary policy divergence — the idea that U.S. monetary policy makers will soon raise interest rates, while the other major central banks continue easy monetary policies.
“A further fall in gold prices makes the headlines, but the focus is back on the Fed and on the front end of the Treasury market,” said Kit Juckes, a currency strategist with Societe Generale.
The euro EURUSD, +0.0739% traded at $1.0846, up 17% from $1.0829 late Friday. The pound GBPUSD, -0.2948% weakened against the dollar, after rising on hawkish comments from Bank of England Gov. Mark Carney last week. It traded at $1.5558, from $1.5605 late Friday in New York. The dollar USDJPY, +0.23% traded at 124.2750 yen, up from ÂĄ124.06 late Friday.
Meanwhile, the New Zealand dollar, one of the worst-hit commodity currencies of the past few months, rebounded against the dollar Monday, trading USDNZD, -0.7771% at 65.78 cents, from 65.21 cents Friday. The Canadian dollar CADUSD, -0.2000% and Australian dollar AUDUSD, -0.0271% , two other commodity-linked currencies, strengthened against the dollar Monday.
The currency, informally known as the kiwi, hit a six-year low against the U.S. dollar Thursday as falling commodity prices raised expectations of a rate cut from the Reserve Bank of New Zealand, which meets later this week.
