Sun, Aug 16, 2015 - Page 15 News List

US dollar has worst week since June, yuan trumps US data

Bloomberg

The US dollar had its worst week in two months as concern over the implications of China’s devaluation overshadowed upbeat US economic data.

The US currency pared losses on Friday as a gauge of producer prices rose more than forecast, before inflation data and minutes from the US Federal Reserve’s latest meeting due next week provide hints about the timing of the Fed’s plans to raise interest rates.

The yuan’s first gain in three days and a pledge by China’s central bank to prevent excessive swings failed to calm markets after Tuesday’s devaluation, with Malaysia’s ringgit plunging the most since 1998.

“We’re going to feel the ripple effects of China’s move for quite some time,” New York-based Standard Chartered PLC senior strategist Mike Moran said by telephone. “The dollar has softened over the week. In the wake of China’s move, there was a line of argument that this could impact the Fed’s reaction function, particularly in September.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major peers, fell 0.3 percent from a week earlier, the most since the period ending June 19.

The US currency slipped 0.1 percent to ¥124.31 as of 5pm in New York, closing the week little changed, and was stronger at US$1.1109 per euro.

China’s surprise move to lower its currency after months of pressure from a strong dollar prompted a flight to safety this week as investors ditched higher-yielding assets in favor of government debt.

The Bloomberg JPMorgan Asia Dollar Index, a trade and liquidity-weighted index of Asian currencies, fell almost 2 percent this week, the most since 2011. The ringgit led losses.

That overshadowed better-than-forecast economic reports in the US that showed industrial production growing 0.6 percent from a month earlier and wholesale prices advancing 0.2 percent. Inflation data are due on Wednesday.

“The market is trying to figure out exactly why those moves were made” in China, Toronto-based USForex Inc head of corporate foreign exchange Ken Wills said by telephone.

Regarding a Fed rate increase, “we think September is still questionable, considering we’re not seeing inflation,” he said.

Traders are pricing in a 48 percent probability the Fed will raise its benchmark rate in September, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

The euro advanced 1.3 percent against the dollar this week, strengthening versus all but one of its 16 major peers.

The currency rallied as traders unwound bets on higher-yielding currencies that were funded in euros, and Greek lawmakers approved a bailout package.

The British pound depreciated 0.5 percent this week to £0.7111 per euro as of 5pm on Friday in London. Sterling climbed 0.9 percent from Friday last week to US$1.5623, the biggest increase since June 19.

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