US dollar poised for weekly dip, pressured by Fed's inflation caution

[TOKYO] The US dollar wobbled in thin trading on Friday, on track for losses against most rivals in a holiday-shortened week as it remained under pressure on the Federal Reserve's cautious view on low US inflation. US markets were closed for the Thanksgiving holiday on Thursday, which was also a national holiday in Japan.

The US dollar skidded on Wednesday after minutes from the Fed's latest policy meeting showed some policymakers fretting over stubbornly weak inflation. That led some to question expectations of hikes in 2018.

The core personal consumption expenditures price index has consistently fallen short of the central bank's 2 per cent target for over five years, even as the Fed has moved toward normalizing policy.

The index that tracks the dollar against a basket of six major rival currencies was down 0.1 per cent at 93.153, and 0.5 per cent lower for the week.

The US dollar added 0.2 per cent against the yen to 111.46, pulling away from Thursday's two-month low of 111.07 yen, though it was still down 0.5 per cent for the week.

"Hedge funds that close their books this month have been taking profits on their dollar-long positions," said Mitsuo Imaizumi, Tokyo-based chief foreign-exchange strategist for Daiwa Securities.

"This has kept the dollar under pressure, and combined with thin liquidity from the holiday, it would be hard for it to climb this session," he said.

The low-yielding yen, which tends to gain as a perceived safe haven in times of market risk aversion, was underpinned by concerns about a precipitous tumble in Chinese stocks.

"There was a big fall in China yesterday, so everyone is focusing on it in Asia today, with so few trading factors as many market participants in Japan and the US are taking days off following the holiday," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.

The CSI300 index shed 3 per cent on Thursday, its biggest decline in almost a year and a half, on concerns about a selloff in Chinese bonds as investors reacted to the latest government curbs to reduce financial risks. It was down 0.9 per cent on Friday.

"The progress of US tax reform remains a key issue for markets, though that's on hold until next week," Ms Sera added.

US President Donald Trump on Thursday promised "big, beautiful fat tax cuts" in his Thanksgiving message, though a majority of economists in a recent Reuters poll predicted US Republicans are not expected to push the tax cuts through Congress this year.

Economists are also sceptical that the legislation would provide a significant boost to the economy.

The euro was steady at US$1.1852, not far from last week's one-month high of US$1.1862. For the week, it was up 0.5 per cent.

The single currency got a boost from European business surveys, which pointed to a strengthening growth outlook for the region. Figures tracking both the services and manufacturing industries in Europe were better than expected.

Sterling edged down 0.1 per cent to US$1.3290, though it was 0.6 per cent higher for the week and remained close to Thursday's six-week high of US$1.3337 ahead of a visit by British Prime Minister Theresa May to Brussels later on Friday for Brexit talks.

REUTERS