US dollar index retreats from one-month high, sterling rises

[NEW YORK] The US dollar slipped from a one-month peak against a basket of currencies on Wednesday, as losses on Wall Street stocks spurred some traders to book profits on gains tied to expectations of possibly another US interest rate increase later this year.

Sterling rose after the Bank of England's chief economist, Andy Haldane, said he expected to back a British rate increase this year. The currency sagged on Tuesday after BOE Governor Mark Carney said now was not the time to raise UK interest rates after three policymakers had voted in favour of a hike last week.

Commodity-linked currencies such as the Canadian dollar and the Australian dollar fell in step with lower oil prices.

"It's a bit of a pushback from the equity space," Jason Leinwand, founder of FirstLine FX Currency Strategy in Randolph, New Jersey, said of the weaker US dollar.

"The market is still digesting what (Fed Chair) Yellen said."

A week ago, the US central bank, as expected, raised key borrowing costs by a quarter point to one-to-1.25 per cent, while Ms Yellen at her news conference downplayed recent signs of inflation softening.

The US dollar index was down 0.2 per cent at 97.541, below a one-month high of 97.871 reached on Tuesday.

The Dow and S&P 500 were modestly lower, while the Nasdaq recovered from recent losses.

Among major currencies, the pound was the biggest gainer against the greenback following Mr Haldane's hawkish view, which ran counter to his perceived dovish reputation.

"If his opinion is shifting, then that is potentially significant news for rates going forward," said Adam Cole, head of FX strategy at RBC Capital Markets in London.

Investors were also closely watching political developments in Britain, with Prime Minister Theresa May's Conservative Party still in talks with Northern Ireland's Democratic Unionists Party (DUP) to form a government.

Sterling was down as much as 0.6 per cent based on Tuesday's close in New York before halving that decline, which brought it to US$1.2668.

Meanwhile, global benchmark oil prices touched seven-month lows on Wednesday on worries about oversupply. That put downward pressure on currencies whose economies are reliant on oil and commodity exports.

The Canadian dollar traded at C$1.3313 per US dollar, down 0.4 per cent from late on Tuesday.

The Aussie was down 0.3 per cent at US$0.7558, and the New Zealand dollar slipped 0.1 per cent to US$0.7231.

Investors await a rate decision from the Reserve Bank of New Zealand due later on Wednesday. Analysts expected the RBNZ to leave rates at a record low of 1.75 per cent.

REUTERS