Dollar Stalls Near Weekly High, Looking Toward FOMC Decisionby
Treasury yields, consumer confidence support dollar rise
Euro trades toward lowest since March 2015 amid muted flows
The dollar is trading near its best level of the week as a rise in dollar-yen to a 10-month high is underpinned by still-robust U.S. Treasury yields and a stock market that refuses to say “enough.”
The dollar resumed a weekly rally mid-morning Friday, gaining a slight impetus after the University of Michigan consumer confidence index rose to 98.0, an almost 2-year high, beating estimates for a more modest gain to 94.5. The dollar had already gained in the session but appeared to be flagging a little ahead of the sentiment data.
The 10-year Treasury yield rose to 2.4766% in early afternoon trading, providing sufficient boost to lift the dollar to its best level of the session before a slight fade. For the week, the dollar is +0.5% as measured by the Bloomberg dollar index, approaching Monday’s high at 1,254.70.
- EUR/USD traded to a fresh low near 1.0530 in afternoon trading, approaching the Dec. 5 low at 1.0506, which was the lowest since March 2015; FX flows were muted in the drop and appetite to buy USD near its recent highs is subdued, a trader in London said
- EUR held a defensive tone at the start of the day after the ECB declined to grant beleaguered Italian lender Banca Monte dei Paschi di Siena additional time to raise capital; the bank now likely faces a state-backed rescue
- EUR was also weighed early in the session by sales of EUR/GBP, though selling let up as the day moved along; sterling gained after consumer inflation expectations rose to the highest since 2014
- Bids to buy the EUR under 1.0550 have slowed the single currency’s drop; that interest is said to extend to, and strengthen toward 1.0500, where ~EU6.2b of option strikes roll-off in the coming week
- USD/JPY rose more than 1% to its highest since Feb. 10 before stalling ahead of offers at 115.40
- USD will find further offers at 115.85, a trader in London said; that level coincides with technical resistance from the Feb. 9 high
- The Canadian dollar eked out slight gains for the session as WTI rose ~1.2% ahead of tomorrow’s gathering of non-OPEC members in Vienna to try and hammer out an agreement to cut production
- Focus turns to the 2-day FOMC meeting that concludes Dec. 14 and will be followed by a Yellen press conference; the Fed is expected to raise interest rates by 25bps, a move that is seen to be largely priced in to current FX levels
- Traders will parse Yellen’s remarks and the dot plot for clues on the U.S. interest rate trajectory for 2017