Dollar slightly lower in cautious trade, sterling steadies

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The U.S. dollar was slightly weaker against a currency basket on Thursday as lower U.S. yields and a recovery in the British pound weighed.

The U.S. dollar index versus a basket of six major currencies dipped to 96.76 by 02:49 AM ET (06:49 GMT) after shedding 0.2% on Wednesday.

The index had climbed to a one-week high of 97.44 on Wednesday on stronger-than-expected U.S. retail sales and a slump in sterling. But it reversed course as Treasury yields fell following weak U.S. housing market data.

Concerns over the ongoing U.S.-China trade war also weighed after the Wall Street Journal reported that progress toward a deal had stalled.

“The dollar basically handed back earlier gains as Treasury yields pulled back and on IMF comments, and came back to where it was a few days ago,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

Various economic data have given conflicting signs regarding the state of the U.S. economy, but that does not change the bigger picture of the dollar facing downward pressure due to an impending rate cut by the Federal Reserve, Kanda said.

The International Monetary Fund (IMF) on Wednesday said the greenback was overvalued by 6% to 12%, based on near-term economic fundamentals.

The Fed is widely expected to cut interest rates by 0.25% at its July meeting, with some in the market pricing in a larger 0.5% rate cut.

The British pound was almost unchanged at 1.2432. It hit a low of 1.2382 in the previous day, its weakest level since April 2017 amid growing fears over the prospect of a no-deal Brexit, before selling abated.

The euro was a touch higher at 1.1234 after edging up 0.1% on Wednesday. The single currency’s gains were modest as it was restrained by expectations of easing from the European Central Bank as early as next week.

The dollar was weaker against the yen, down 0.3% to 107.71 following an overnight loss of 0.3%.

The New Zealand dollar hovered near a three-month peak of 0.6745 scaled overnight. The kiwi has gained more than 0.5% this week, supported by positive domestic factors such as strong inflation.

The Australian dollar was up 0.36% at 0.7032 after ending the previous day little changed. Data overnight showed that Australian full-time employment surged in June, but the unemployment rate stayed stuck at 5.2% for a third straight month.

The data reinforced the view that labor market conditions have eased, underlining expectations for further rate cuts by the country’s central bank later this year.

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