The US dollar posted its longest winning streak in 10 months as foreign central banks’ efforts to curb slowing global growth buoy demand for assets denominated in the US currency.
A measure of the greenback reached its highest level this month as investors viewed the People’s Bank of China’s (PBC) decision to lower its benchmark lending rate as an effort to address recent turmoil in emerging markets.
The moves came one day after European Central Bank (ECB) President Mario Draghi said policymakers might continue their quantitative easing program until September next year or beyond if economic weakness persists.
“It seems that momentum is certainly on the side of being short the euro right now and long the [US] dollar,” said Doug Borthwick, head of foreign exchange at New York brokerage Chapdelaine & Co. “There’s different ways to look at — in an environment that’s more risk-on, you’re going to see the euro sell off and [US] dollar-yen go big,” he said, adding that “the dollar would sell off versus the emerging markets.”
A short position is a bet that an asset will decline in value, while a long is a wager on appreciation.
The Bloomberg Dollar Spot Index on Friday rose for a seventh day, its longest rising streak since Jan. 26, to 1,212.22 as of 5pm New York time. The index tracks the US currency against 10 major peers. The US dollar gained 0.8 percent to US$1.1018 per euro, reaching its strongest since Aug. 7. The US currency added 0.7 percent to ￥121.47.
The Standard & Poor’s 500 Index of stocks advanced 1.1 percent, reaching the highest level in two months.
The US Federal Reserve is to convene next week to discuss the possibility of raising its benchmark interest rate for the first time in almost a decade.
Fed board member Daniel Tarullo, who votes on rate decisions, this month said that he does not favor an interest rate hike this year after several others signaled the central bank might still increase rates this year as long as the economy stays on track.
China’s central bank’s decision to lower interest rates at the same time that the Fed is considering a hike is “a positive for US risk sentiment and another reason you are seeing the dollar strengthen,” Portland, Oregon-based US Bank Wealth Management head of fixed-income research Jennifer Vail said. “As long as the economy can continue to plug away at this moderate, sustained trajectory of growth, that means the Fed will liftoff in December and normalize.”
The ringgit on Friday soared 1.5 percent against the US dollar and the rupiah gained 1.05 percent. The won was up 1.16 percent with news that the nation’s economy grew more than expected in the third quarter, also providing strong support.
The Thai baht along with the Singaporean, Taiwanese and Australian units also booked solid gains against the greenback.
The US dollar fell against the New Taiwan dollar, shedding NT$0.145 to close at NT$32.513 in Taipei trading as traders were encouraged by the strength of other regional currencies to increase their holdings in the local unit, dealers said.
Buying in the currencies in the region came on hopes that the ECB would expand its stimulus measures by injecting more funds, which could create a spillover effect in the region, the dealers said.
The gains posted by the NT dollar also reflected foreign fund inflows into the local equity market, with a massive net buy before the local central bank stepped in to rein in the local currency’s upturn, they added.
The NT dollar upturn helped the currency stop a three-session losing streak.
The greenback opened at NT$32.660 and moved between NT$32.300 and NT$32.670 before the close. Turnover totaled US$757 million during the trading session.
The British pound advanced 2.3 percent this week to￡0.7183 per euro, having touched ￡0.7169, the strongest level since Aug. 21. The weekly gain was the biggest since July.
Mizuho’s Jones sees sterling appreciating beyond ￡0.70 this year.
Britain’s currency dropped 0.6 percent to US$1.5347, ending three weeks of gains.
Additional reporting by AFP
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