The US dollar rose for a second day on Friday, recapturing territory amid its longest losing streak since May.
The greenback pared its third consecutive week of declines as traders refocused on the relative strength of the US economy versus its major peers. Even though speculation about the timing for an interest rate increase has been pushed back, the US Federal Reserve remains on course to tighten monetary policy before other major central banks.
The outlook for the European Central Bank (ECB) to expand its easing encouraged executive board member Benoit Coeure to express worry on Friday about the high expectations placed on policy.
“The Fed is almost certainly likely to lead most other major central banks in monetary normalization,” said Omer Esiner, chief market analyst at currency brokerage Commonwealth Foreign Exchange Inc in Washington. “The data that we’ve seen has been good to shake out some of those dollar short positions,” which are bets against a currency.
The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major counterparts, climbed 0.4 percent as of 5pm on Friday in New York. The measure fell 0.2 percent for the week.
The US dollar gained 0.3 percent to US$1.1348 per euro and added 0.5 percent to ￥118.44.
US economic reports on Friday added to expectations that the Fed would raise rates before too long. Industrial production met forecasts, while a gauge of consumer sentiment rose for the first time in four months.
US consumer prices excluding food and fuel climbed the most in three months last month, data on Thursday showed. By contrast, eurozone inflation turned negative for the first time since the ECB started quantitative easing.
The probability the Fed would increase rates by its December meeting rose to 34 percent from 27 percent on Wednesday, according to futures. The calculations are based on the assumption the effective fed funds rate will average 0.375 percent after liftoff, compared with the current range of zero to 0.25 percent.
“The US rate cycle still looks to be on a different plane than the other central banks,” said Mitul Kotecha, head of foreign-exchange and rates strategy for Asia at Barclays PLC in Singapore. “We’re still constructive on the dollar, especially at these sort of levels where we’ve seen some weakness.”
Meanwhile, sterling gained versus most of its major peers this week amid mixed UK data that showed the jobless rate fell, while inflation turned negative and wage growth accelerated less than economists forecast.
“The pound has emerged as what we call the poor man’s decoupling trade,” said Valentin Marinov, head of G10 currency research at Credit Agricole SA’s corporate and investment banking unit in London. “Investors turn to the pound when the other policy divergence trade — long US dollar — stops working.”
Sterling rose for a third week versus the US dollar, gaining 0.8 percent to US$1.5444 as of 5pm on Friday in London. The pound strengthened 0.7 percent to ￡0.7362 per euro, its first weekly advance since the middle of last month. On a trade-weighted basis, the UK currency climbed from a five-month low reached on Oct. 13.
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