The euro and sterling on Friday dipped against the US dollar as investors bet that interest rates would stay lower for longer in Europe and the UK, while looking ahead to next week’s US monetary policy meeting.
The US dollar index, showing its strongest weekly gain since early last month, rose 0.48 percent on the day at 90.51, up 0.45 percent for the week.
On Friday, the euro was down 0.63 percent at US$1.2099, posting its biggest weekly decline since the end of April.
In Taipei on Friday, the New Taiwan dollar rose against the greenback, gaining NT$0.073 to close at NT$27.631, up 0.3 percent for the week.
A day after the European Central Bank (ECB) stuck to its dovish stance, ECB policymaker Klaas Knot said that flexible fiscal rules would be needed for years as monetary policy remains constrained.
“ECB policymakers are indicating that inflation rates are way below levels that are needed to put upward pressure on rates,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.
“That’s cutting away at the euro’s recent rally, putting some downward pressure on it. The biggest contributor to the move we’ve seen overnight is the [euro] weakness as opposed to idiosyncratic dollar positive forces. The dollar’s winning the reverse beauty contest,” Schamotta added.
Sterling fell 0.54 percent to US$1.4098 as traders worried about slower-than-expected growth as the rapid spread of the “Delta” COVID-19 variant in the UK raised concerns that much of the country might not be able to fully reopen from a pandemic-related lockdown on June 21 as previously hoped.
Currency markets had been sluggish all week in anticipation of Thursday’s release of US consumer prices, which rose 5 percent year-on-year last month.
However, even with the number above expectations, there was little market reaction. Investors seemed to back the US Federal Reserve’s assertion that high inflation would be temporary.
Economists see the central bank announcing in August or September a strategy for reducing its massive bond-buying program, but do not expect it to start cutting monthly purchases until early next year, a Reuters poll found.
Traders were still preparing for volatility around the Federal Open Market Committee (FOMC) meeting scheduled for the week ahead, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
“If you’re starting from a position where you’re already short dollars, since FOMC meetings often have a lot of volatility, you might reduce your short for risk management purposes,” Anderson said.
Meanwhile, investors left riskier currencies, such as the Australian dollar, which was down 0.72 percent at US$0.7697 after hitting its lowest level for the week, while the New Zealand dollar was off 1.01 percent at US$0.7123 after touching its lowest level since May 4.
Additional reporting by CNA, with staff writer
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