* Dollar recovers as equities gain, Fed hikes in focus

* Euro declines as ECB’s Draghi moderates inflation outlook

* Yen, Swiss franc attract modest safe-haven demand

* Graphic: World FX rates in 2018 (Adds detail, updates prices)
By Tom Finn
LONDON, Oct 12 (Reuters) – The dollar edged up on Friday,
reflecting investor confidence in the U.S. economy, despite
criticism by President Donald Trump of the Federal Reserve and a
sell-off in U.S. equities.

A recent decline in stocks has yet to spread into foreign
exchange markets, with emerging-market currencies still
appreciating and the safe-haven Japanese yen and Swiss franc not
budging significantly.
The dollar has risen 2.5 percent since July on expectations
interest rates will soon rise further and on safe-haven flows
from the U.S.-China trade war.
But a drop in U.S. Treasury bond yields and
weaker-than-forecast rise in U.S. consumer prices saw the dollar
shed half a percent on Thursday as traders cut their bets on
Federal Reserve rate hikes.
Hedge funds have staked out their longest dollar positions
since the end of 2016 and markets are focused on any change in
economic data that could alter the Fed’s thinking.
The dollar index , a gauge of its value against six
major currencies, traded 0.1 percent at 95.143 on Friday, just
below its monthly high of 96.15 on Tuesday.
"We doubt the dollar will derive much further cyclical
support through the remainder of the year. Political uncertainty
could also undermine the dollar ahead of the mid-term elections
on 6 November," said Derek Halpenny, European head of Global
Markets Research at MUFG.
But other analysts see few signs the dollar will fall
further. Fed officials said last month they expected three rate
hikes in 2019.
"If the equity markets were to calm down again quickly
without developments spreading to other asset markets, there is
no reason in our mind why the Fed should not continue its rate
hikes as planned," said Esther Maria Reichelt, an FX strategist
at Commerzbank in Frankfurt.
"The dollar will be able to maintain its current strong
levels for now but further appreciation potential is limited,"
she said.
The euro edged down on Friday after reaching a
weekly high at 1.1611 after ECB President Mario Draghi toned
down his outlook for a rise in underlying inflation from
"relatively vigorous" to "gradual". ECB minutes on Thursday suggested the central bank was on
track to normalise its ultra-loose monetary policy this year
despite concern about slowing growth in Europe .

"We’ve heard quite a bit of comment from euro zone
policymakers recently about rising inflation and the message is
consistent, which is that price pressures are growing," said
Kathy Lien, managing director of foreign exchange strategy at BK
Asset Management.
The Japanese yen , a preferred currency in times of
market turbulence, traded at 112.34 on Friday. It had
strengthened to 111.83 versus the dollar on Thursday, its
highest since Sept. 18.
The Chinese yuan fell 0.6 percent to 6.9198, its biggest
daily decline in six weeks. U.S. President Donald Trump told Fox
News on Thursday there was much more he could do that would hurt
China’s economy, suggesting no signs of backing off a growing
trade war with Beijing.
The Australian dollar was at $0.7122, recovering from
Monday’s two-year low of $0.7039. The rally was aided by
promising news out of China, its biggest trade partner.

(Additional reporting by Vatsal Srivastava, editing by Larry
King)

tom.finn.reuters.com@reuters.net))

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