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US dollar enjoys reprieve as euro, sterling feel the heat

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The US dollar index was on track for a modest weekly gain on Friday, having bounced off this week's one-month lows as the euro took a heavy spill while sterling stayed under a cloud on jitters over the upcoming Brexit vote.

[TOKYO] The US dollar index was on track for a modest weekly gain on Friday, having bounced off this week's one-month lows as the euro took a heavy spill while sterling stayed under a cloud on jitters over the upcoming Brexit vote.

The US dollar index added 0.3 per cent to 94.185, pulling away from Wednesday's trough of 93.425, its lowest since May 11, and was up 0.2 per cent for the week.

Driving the index's rise was a bearish turn in the euro, which slid 0.2 per cent to US$1.1298, further distancing itself from the previous session's one-month high of US$1.1416. The European currency was poised to slip 0.6 per cent for the week.

A Reuters report on Commerzbank looking to put billions of euros in vaults rather than pay a penalty charge for parking them with the European Central Bank appeared to have unsettled an already nervous market.

"It seems the news made waves early in the European session Thursday, our London team reporting that this was credited for the euro being sold across the board," analysts at National Australia Bank wrote in a note to clients.

The common currency also plumbed a fresh three-year low of 120.315 yen on Thursday before paring losses. It was last down 0.2 per cent at 120.95, down 0.1 per cent for the week.

The US dollar was down 0.1 per cent against the yen at 107.02 yen but was still up 0.4 per cent in a choppy week that saw it touch 106.26 yen on Thursday, its lowest since May 4.

"It's very hard to take new positions in US dollar/yen now, ahead of next week's central bank meetings, so I think the pair will be rangebound for a while," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

The US Federal Reserve is scheduled to hold its two-day policy meeting through Wednesday, while the Bank of Japan concludes its own two-day policy meeting on Thursday. China's industrial production and retail sales data due on Monday could also set the tone for Asian trading next week.

The market continued to give sterling a wide berth, pushing the currency to US$1.4450, down slightly and well off this week's peak of US$1.4664.

The pound has whipsawed in recent session in response to polls and other developments ahead of the UK's June 23 referendum on EU membership.

BlackRock, the world's largest asset manager, said financial markets may be under-pricing the "Brexit" risk of Britain leaving the EU.

With the euro zone and the UK in focus overnight, the US dollar enjoyed a small reprieve. US dollar bulls had been hit hard since disappointing payrolls data a week ago convinced investors that the Fed will refrain from hiking interest rates as early as next week's policy review.

A fresh batch of US data on Thursday was more encouraging, with a surge in wholesale inventories in April prompting economists to lift their second-quarter economic growth estimates.

A stand-out performer this week was the New Zealand dollar, which staged a broad rally after the Reserve Bank of New Zealand on Thursday skipped a chance to cut interest rates and appeared reluctant to cut again.

The kiwi powered to a one-year high just shy of 71.5 US cents and was last at US$0.7097, up 2 per cent for the week.

REUTERS