The Dollar Rally Failed Sustain Itself As The Likelihood Of A Sixth Loss In Eight Weeks Weakened Investors’ Faith In The Currency.
The US dollar lingered close to a one-week trough against a basket of rival currencies in Friday’s session despite the release of optimistic economic data.
The aforementioned data and positive economic outlook for the US economy were not able to lift Treasury yields that have weighed on the currency since Wednesday, and worries about policy under US president Donald Trump are quashing hopes for a fresh dollar rally.
“The dollar did rally in spurts this week, but the surge lacked strong conviction. For example dollar/yen failed to take out the 115.00 threshold,” stated Junichi Ishikawa, senior forex strategist at Tokyo-based IG Securities.
“This shows that the market is still trying to work out the implication of President Trump's policies, of which his approach to trade may not be supportive for the dollar.” US economy, bond yields
Climbing steadily over the past ten days, US government bond yields hit a wall last Wednesday and without a broader revival in US time, the dollar index was already on track for its sixth weekly loss in the past eight.
In particular, the pull back in treasury yields dragged down the greenback overnight: the 10-Year yield ended down lower -0.052 points to 2.450 while the 30-yield dropped -0040 to finish at 3.051.
Thursday’s set of indicators provided more optimistic outlook on the US economy, with the Philadelphia manufacturing index reaching a 33-year high. That followed solid inflation and retail sales data and a lift from US Federal Reserve Chair Janet Yellen, who spoke on Tuesday in support of a near-term interest rate hike.
However, the political uncertainties regarding the Trump administration seem to have caused less confidence within investors, or at least left them less focused on the general reflation trade that pushed the dollar higher in November and the early weeks of December.
A confrontational presidential news conference on Thursday, followed the resignation of Michael Flynn, the US National Security Adviser, earlier this week. The political noise had investors and analysts doubting how effective the Trump administration will be in enacting his legislative agenda.
US Dollar Index, analysis
The dollar index returned to 100.50 levels after hitting as high as 101.76 earlier this week. It currently stands at 100.64, up by a meek 0.19%.
The US dollar index traded less than 0.2% higher on the day in morning trade in Europe at 100.64, hitting an eight-day low of 100.410 overnight. As of writing, the US dollar index touched an intraday high of 100.75, and an intraday low of 100.45.
With its recent performance, the greenback is not trading as the third weakest major currency, with the Japanese yen remaining as the weakest one on strong risk appetite.
The New Zealand dollar followed as second after the worse-than-expected economic data. Meanwhile, the Swiss Franc is regarded as the strongest major currency this week, partially due to political qualms in the Eurozone and UK.
Lee Hardman, a currency economist with MUFG in London, said that the recent US dollar rally has already lost momentum after hitting technical resistance.
“The dollar is already deeply overvalued against the other major currencies. As a result we believe that the scope for further U.S. dollar upside is more limited now even as US economic fundamentals are encouraging.”