Dollar edges higher, buoyed by monetary policy imbalance
dollar edged higher against other major currencies on Friday, hitting a fresh eight-week high against the yen as data showed a strong U.S. economy and as the Federal Reserve's patient approach to interest-rate cuts stood in contrast to more dovish peers.
U.S. business activity hit a 26-month high in June amid a rebound in employment while price pressures subsided considerably, suggesting that a recent slowdown in inflation was likely to be sustained.
The dollar index, which measures the currency against six others, was up 0.2% at 105.81 in New York afternoon trading. It had spiked 0.41% overnight, erasing declines for the week, following a second successive rate cut at the Swiss National Bank and hints from the Bank of England of a reduction in August.
Thierry Wizman, global FX & rates strategist at Macquarie, in New York sees continued dollar strength as political uncertainty in Europe could eventually sap business and consumer confidence.
«Even if the euro or sterling were to rally, I can't imagine it being a strong or durable rally,» said Wizman. «I'd be more inclined to sell into that rally and then cover at a lower point.»
For Matt Weller, head of market research at StoneX, Grand Rapids, Michigan, the Japanese yen will be important for FX traders to watch next week.
The U.S. Treasury on Thursday added Japan to a list of countries it is monitoring for potential labelling as a currency manipulator, «a diplomatic warning against additional intervention», said Weller. China is among others on the list.
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