Economic momentum maintains dollar at the top even though the Fed confirmed its dovish shift this week in the minutes from its last meeting. It seems like the dollar will continue to enjoy a yield advantage over rivals.
It was supposed to be the start of a dollar downturn. Instead, investors are scaling back those bets as a dovish shift by the Federal Reserve is emulated by central banks worldwide. This keeps intact the greenback’s interest rate premium over other currencies.
The dollar gained 4.4 percent in 2018 – its best year since 2015 – as strong economic growth allowed the Fed to raise rates repeatedly.
Traders began in late 2018 to bet the dollar was heading for a fall from 18-month highs amid signs the Fed was nearing the end of its three-year long policy tightening cycle. Many reckoned it would stop shrinking its balance sheet as well. Other central banks, from the European Central Bank to Australia, were primed to kick off rate rises.
But after falling in December and January, the dollar has recovered, and is up 1% so far in February. Against some currencies such as the Australian dollar, it has jumped more than 2 percent. Economic momentum looks worse elsewhere, forcing policymakers to ditch, postpone or soften policy tightening plans.
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The euro dipped on Friday after a survey showed German business morale fell for the sixth month in a row. While it edged lower, the common currency remained in positive territory against the dollar at $1.1351. It hit a two-week high of $1.1371 on Wednesday, helped by hopes for an easing of the U.S.-China trade conflict.
The dollar traded flat against a basket of major currencies. Thursday’s U.S. economic data showed an unexpected decline in core capital goods orders, bolstering expectations the Fed will keep interest rates steady.
The Australian dollar rebounded after China denied it had banned imports of the country’s coal after tumbling more than 1% on Thursday. China said on Friday imports would continue, but customs has stepped up checks on foreign cargoes.
That saw the Aussie rise to the day’s high of $0.7117, up 0.3% on the day.
Sterling set to snap three week losing streak on Brexit hopes. The pound was broadly flat at $1.3038 but was set to rise 1.2% for the week, breaking three consecutive weeks of losses. On a weekly basis, it was also the best performing currency among its major rivals.
Sources: Reuters, Investing, CNN money
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