The US dollar pared its gains for the week, losing some upward momentum as signs of fresh US-China tension and end-of-week profit-taking robbed the greenback of traction amid moderate foreign-exchange flows and sparse liquidity.
Friday trading was driven by risk avoidance, a theme likely to continue next week as markets wind down ahead of year-end holidays, traders said.
The US dollar on Friday fell less than 0.1 percent as measured by the Bloomberg dollar index, the drop coming as the 10-year US Treasury yield retreated from a session high to trade near its low for the day.
Photo: Reuters
The index is still up 1.34 percent for the week.
Traders reacted to headlines that China had seized an unmanned US submersible in the South China Sea. The Chinese currency fell to a record low in the offshore market following the reports, though traders there also complained of sparse liquidity and light flows.
The US dollar recorded its biggest weekly percentage gains against the euro, yen and Swiss franc in four weeks.
The euro declined 1.2 percent against the US dollar, while the US dollar gained 2.2 percent against the yen and about 1 percent against the Swiss franc for the week.
Earlier on Friday, the greenback was attempting to pare its small overnight drop until a report that US housing starts last month fell more than expected took the wind out of its sails.
In Taipei, the US dollar on Friday rose against the New Taiwan dollar, gaining NT$0.044 to close at NT$31.967. The greenback rose 0.34 percent against the NT dollar from last week’s NT$31.860.
Emerging-market currencies retreated this week as a tighter US Federal Reserve interest-rate policy curbed the appeal of riskier assets. Chile’s peso led declines as copper fell, while Poland’s zloty topped gains.
“The story now is the US versus the rest of the world,” said Simon Quijano-Evans, a strategist at Legal & General Group PLC in London.
While emerging market currencies are feeling the spillover now, a bigger risk would take shape if US president-elect Donald Trump fails to spur price growth, he said.
“In that case, the big challenge will be to see whether any drop in equities will pass through into weaker emerging markets in general,” he added.
MSCI Emerging Markets Currency Index fell 0.3 percent after biggest drop in a month on Thursday. It lost 0.2 percent to conclude 2.5 percent weekly slide.
The South Korean won “is one of the [emerging market] currencies most at risk as markets digest the implications of the US election results. While [South] Korea remains on a path of weak growth, debt overhang and manufacturing overcapacity, rising concerns on trade protectionism would further negatively impact [South] Korean growth and the won,” Quijano-Evans said.
“The Turkish currency appears cheap when seen through the lens of a CPI-adjusted real-exchange rate. But unit labor costs have significantly outstripped consumer price inflation this year, suggesting valuations are not as cheap as first meets the eye,” he said.
Additional reporting by CNA and Reuters
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