Dollar Holds Gain Against Euro, Yen as China Quiets Turmoil

  • Euro extends losses as Draghi says ECB won't hesitate to act
  • U.S. financial markets were closed Monday for national holiday

The dollar held gains against the euro and yen after China boosted the yuan Monday following a week-long holiday, helping ease global financial turmoil that had spurred investors to bet the Federal Reserve will delay raising U.S. interest rates.

The euro slid the most in two weeks Monday after European Central Bank President Mario Draghi said policy makers wouldn’t hesitate to act if price stability is threatened. The greenback kept its advance versus the currencies often perceived as haven assets after a report Friday showed U.S. retail sales increased more in January than economists forecast. Large hedge funds and speculators cut their bets on the dollar’s gains last week by the most since June.

“For the short term, I wouldn’t fight this trend,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London. “China is very much at the center of the risk-off moves we have seen, anything which puts floor on the expectations from China clearly has global implications. Longer term we still have major concerns over China but for the moment it backstops risk sentiment and that’s negative for the yen and euro.”

The dollar was little changed at $1.1162 per euro as of 7:50 a.m. in Tokyo, after gaining 0.9 percent on Monday. The U.S. currency was at 114.48 yen from 114.60 Monday, when it jumped 1.2 percent. The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, climbed 0.5 percent on Monday after last week dropping to the lowest level since November. U.S. financial markets were closed Monday for Presidents’ Day.

ECB Stimulus

The euro had extended declines as Draghi said that ECB policy will be accommodative for a long time. He added that market sentiment is deteriorating and becoming more volatile. Draghi has previously said the central bank will review its monetary policy stance at next month’s meeting.

Investors in China returned Monday from a week-long holiday during which a rout in stocks around the world boosted demand for the relative safety of U.S. Treasuries and Japanese government bonds. A trade report showed exports declined 6.6 percent in January in yuan terms from a year earlier, while imports fell 14.4 percent.

Fed Chair Janet Yellen said last week policy makers were assessing the impact of the swings in the markets on the economy but doubted that would prompt it to reverse course and cut rates. The U.S. central bank increased its benchmark in December for the first time in almost a decade.

There’s about a 30 percent probability the Fed will raise rates in 2016, according to futures data compiled by Bloomberg. The odds were more than 90 percent at the end of last year.

Bullish Wagers

Hedge funds and other large speculators cut wagers on dollar strength to a net 176,872 contracts in the week ended Feb. 9, the least since October, according to data from the Commodity Futures Trading Commission showed. Bullish bets dropped by 88,287 contracts, the most since June.

Global foreign-exchange volatility has retreated from its highest level in more than four years after the U.S. data on Friday.

The yen has strengthened against all its 16 major counterparts this year, and reached 110.99 per dollar on Feb. 11, its strongest since October 2014. The Japanese currency pared gains Monday as stocks soared on expectations for more monetary stimulus after a report showed Japan’s economy shrank more than expected last quarter.

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