Dollar Stalls Near Weekly High, Looking Toward FOMC Decision

  • 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