Dollar bounces from worst week in 2 month
By Rachel Koning Beals and Anneken Tappe
Published: Sept 11, 2017 9:50 a.m. ET
The dollar advanced cautiously Monday against most rivals, climbing from its deepest weekly drop in two months, as renewed interest in riskier assets benefited the U.S. unit.
Most major global stock indexes pushed higher Monday expressed relief after North Korea marked the 69th anniversary of its founding on Saturday without any further missile or nuclear tests, fueling some unwinding of safe-haven bets in gold, bonds and the Japanese yen. Meanwhile, the U.N. is discussing new sanctions against Pyongyang, which could be targeting textile exports, in response to repeated missile launches and a nuclear test over the past weeks.
If the U.S. does “rig up the illegal and unlawful ‘resolution’ on harsher sanctions, the DPRK shall make absolutely sure the U.S. pays due price,” said North Korea’s foreign ministry via a statement published by the official KCNA news agency, according to AFP.
Financial markets have also been assessing continued storm damage in the U.S. and its implications for the economy. Hurricane Irma was downgraded to a tropical storm on Monday after tearing a destructive path across South Florida on Sunday, where around four million people are without power, after it made landfall as a Category 3 hurricane.
In response, the ICE U.S. Dollar Index DXY, +0.28% a gauge of the greenback’s performance against six rivals, rose 0.5% to 91.770. It dropped to a 2 1/2-year low of 91.011 at one point Friday. The WSJ Dollar Index BUXX, +0.43% which measures the U.S. currency against a larger basket of counterparts, was up 0.4% at 84.86.
“The dollar index has bounced back up from its two years lows purely because the estimates of economic damage [from Hurricane Irma] are far less than anticipated,” said Naeem Aslam, chief market analyst at Think Markets.
The greenback had retreated against major rivals for much of last week, and especially Friday, as natural disasters, geopolitical tensions and a continued pullback in Treasury yields cast a pall over the U.S. currency, with exchange rates for the Japanese yen, the euro and the pound at recent notable highs on their own fundamental drivers. Last week’s extension of the U.S. debt ceiling and government funding deadline did help the dollar up deeper lows.
The dollar is up against the Japanese yen USDJPY, +1.03% changing hands at ¥108.84 on Monday compared with ¥107.84 late Friday in New York. The pair broke down through the ¥108 level for the first time since November 2016 on Friday, causing the pair to lose 2.3% last week, making it the biggest loss since November as investors flocked to the perceived safety of yen.
In other havens, the dollar also rose against the Swiss franc USDCHF, +0.8261% buying 0.9527 franc, compared with 0.9442 late Friday in New York.
There are no key U.S. economic data releases on the docket for Monday. The U.S. 10-year Treasury TMUBMUSD10Y, +2.96% note rose to a yield of 2.11%, which helped to lift the dollar. Analysts are instead focused on data due later in the week, including consumer-price inflation, retail sales, industrial production, consumer sentiment and the Empire State manufacturing survey.
Even though Hurricane Harvey and Irma’s impact is only expected to show up in third quarter GDP numbers, “the Hurricanes are almost certainly likely to cause inflation, as supply lines are disrupted and shortages ensue,” Thierry Wizman, global interest rates and currencies strategist at Macquarie, wrote in a note on Monday. “This will show up already in August inflation later this week, largely because of the gasoline price spike. This rise in inflation will likely extend into September as well, as other production verticals are affected.”
“U.S. inflation data will be the talk of the week when it comes to dollar index from here onwards and a number better than expectations could satisfy the bulls,” Aslam said.
Net short bets against the dollar remain near their highest levels since January 2013 as expectations of Federal Reserve policy tightening have faded. Currency markets now expect only one U.S. rate increase by the end of 2018, and even those odds have dropped since just a few weeks ago.
The dollar clawed back somewhat against the euro EURUSD, -0.4320% pushing the eurozone currency below $1.20 at $1.1974, compared with $1.2037 late Friday in New York. The euro last week was visiting levels not seen since January 2015, following Thursday’s European Central Bank meeting. The shared currency registered a 1.5% gain for the week.
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Dollar bounces from worst week in 2 month
By Rachel Koning Beals and Anneken Tappe
Published: Sept 11, 2017 9:50 a.m. ET
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Attention remains on Hurricane Irma and U.N.’s North Korea decision
FactSet
The dollar advanced cautiously Monday against most rivals, climbing from its deepest weekly drop in two months, as renewed interest in riskier assets benefited the U.S. unit.
Most major global stock indexes pushed higher Monday expressed relief after North Korea marked the 69th anniversary of its founding on Saturday without any further missile or nuclear tests, fueling some unwinding of safe-haven bets in gold, bonds and the Japanese yen. Meanwhile, the U.N. is discussing new sanctions against Pyongyang, which could be targeting textile exports, in response to repeated missile launches and a nuclear test over the past weeks.
If the U.S. does “rig up the illegal and unlawful ‘resolution’ on harsher sanctions, the DPRK shall make absolutely sure the U.S. pays due price,” said North Korea’s foreign ministry via a statement published by the official KCNA news agency, according to AFP.
Financial markets have also been assessing continued storm damage in the U.S. and its implications for the economy. Hurricane Irma was downgraded to a tropical storm on Monday after tearing a destructive path across South Florida on Sunday, where around four million people are without power, after it made landfall as a Category 3 hurricane.
In response, the ICE U.S. Dollar Index DXY, +0.29% a gauge of the greenback’s performance against six rivals, rose 0.5% to 91.770. It dropped to a 2 1/2-year low of 91.011 at one point Friday. The WSJ Dollar Index BUXX, +0.45% which measures the U.S. currency against a larger basket of counterparts, was up 0.4% at 84.86.
“The dollar index has bounced back up from its two years lows purely because the estimates of economic damage [from Hurricane Irma] are far less than anticipated,” said Naeem Aslam, chief market analyst at Think Markets.
The greenback had retreated against major rivals for much of last week, and especially Friday, as natural disasters, geopolitical tensions and a continued pullback in Treasury yields cast a pall over the U.S. currency, with exchange rates for the Japanese yen, the euro and the pound at recent notable highs on their own fundamental drivers. Last week’s extension of the U.S. debt ceiling and government funding deadline did help the dollar up deeper lows.
The dollar is up against the Japanese yen USDJPY, +1.04% changing hands at ¥108.84 on Monday compared with ¥107.84 late Friday in New York. The pair broke down through the ¥108 level for the first time since November 2016 on Friday, causing the pair to lose 2.3% last week, making it the biggest loss since November as investors flocked to the perceived safety of yen.
In other havens, the dollar also rose against the Swiss franc USDCHF, +0.8155% buying 0.9527 franc, compared with 0.9442 late Friday in New York.
There are no key U.S. economic data releases on the docket for Monday. The U.S. 10-year Treasury TMUBMUSD10Y, +2.96% note rose to a yield of 2.11%, which helped to lift the dollar. Analysts are instead focused on data due later in the week, including consumer-price inflation, retail sales, industrial production, consumer sentiment and the Empire State manufacturing survey.
Even though Hurricane Harvey and Irma’s impact is only expected to show up in third quarter GDP numbers, “the Hurricanes are almost certainly likely to cause inflation, as supply lines are disrupted and shortages ensue,” Thierry Wizman, global interest rates and currencies strategist at Macquarie, wrote in a note on Monday. “This will show up already in August inflation later this week, largely because of the gasoline price spike. This rise in inflation will likely extend into September as well, as other production verticals are affected.”
“U.S. inflation data will be the talk of the week when it comes to dollar index from here onwards and a number better than expectations could satisfy the bulls,” Aslam said.
Net short bets against the dollar remain near their highest levels since January 2013 as expectations of Federal Reserve policy tightening have faded. Currency markets now expect only one U.S. rate increase by the end of 2018, and even those odds have dropped since just a few weeks ago.
The dollar clawed back somewhat against the euro EURUSD, -0.4486% pushing the eurozone currency below $1.20 at $1.1974, compared with $1.2037 late Friday in New York. The euro last week was visiting levels not seen since January 2015, following Thursday’s European Central Bank meeting. The shared currency registered a 1.5% gain for the week.
Read: Here’s why the rising euro is defying Mario Draghi and the ECB
ECB board member Benoît Coeuré said Monday that improved eurozone growth could offset some of the negative effects of the euro’s strength, but added that a nagging exchange-rate shock could hold back inflation. The euro had rallied after the ECB’s Mario Draghi said last week that policy makers will reassess the bank’s quantitative-easing program at its Oct. 26 meeting. There are widely held expectations for the bank to begin to wind down its €60-billion, monthly bond-buying program in 2018.
In other moves, the pound GBPUSD, -0.1515% changed hands at $1.3191 compared with $1.3197 late Friday in New York. Over the course of last week, the pound appreciated 2% against the dollar, in its biggest move since late June.