US dollar posts best week in 15 months amid market turmoil

[NEW YORK] The US dollar rose on Friday for its strongest week against a basket of currencies in nearly 15 months as some traders piled into the greenback in a week of tremendous swings felt in stock and bond markets around the world.

The US currency recovered further from a three-year low set two weeks ago. Some traders have bought it to close out their bets on its weakness, while others favored the dollar in a safe-haven move over higher-returning but riskier currencies, analysts said.

"Overall, it's just a highly volatile environment where the idiosyncratic things that drive (the market) - fundamentals, economic data - are taking second stage... Everything is becoming much more correlated in a very volatile environment," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

This week's dramatic moves - in equities with the Dow falling over 1,000 points on Thursday and in bonds with 10-year yield rising to a four-year peak earlier this week - were stoked by concerns about signs of inflation amid an improving global backdrop and speculation whether the Federal Reserve and other major central banks would act quicker to raise interest rates.

Equity and bond market volatility has surged this week. While foreign exchange markets have been calmer, the turbulence was enough to upend some popular trades, analysts said.

Betting on the US dollar weakening against the euro has been one of them, with an expanding euro zone economy stoking expectations the European Central Bank will shrink its balance sheet sooner than expected.

The single currency was last down 0.09 per cent at US$1.2234, marking a 1.8 per cent drop this week which would be its steepest weekly decline since November 2016, Reuters data showed.

The greenback stabilised versus safe-haven currencies after Thursday's decline.

It rebounded from a four-month low to 108.58 yen, down 0.15 per cent. It was up 0.32 per cent at US$0.9388 Swiss franc.

Against a basket of six major currencies, the greenback was up 0.22 per cent at 90.427. On the week, the US dollar index gained 1.41 per cent for its best week in almost 15 months.

The US dollar's advance was supported by some stabilisation in US stock prices, a day after heavy selling sank the Dow and S&P 500 into correction territory.

The bond market also calmed from its wild moves earlier this week. Benchmark 10-year Treasury yields were 1.4 basis point lower on the day at 2.835 per cent, which was below a four-year peak of 2.885 per cent on Monday.

The US dollar also received support after Congress and US President Donald Trump approved a federal budget plan that ended an overnight federal shutdown.

REUTERS