Dollar gives up gains on economic data

New York

THE dollar gave up gains from early on Friday as traders tidied positions ahead of month-end and a holiday weekend after seeing new economic data confirm expectations about US inflation and the recovery from the Covid-19 pandemic.

The dollar index of major currencies rose as much as 0.4 per cent during the day in a sharp rebound from 41/2 month lows plumbed on Tuesday before it fell back to flat for the day and the week at 89.99.

Ending with little change was a break from the down trend since March that had taken 3 per cent from the dollar's value as other major economies began to catch up with vaccination rates in the United States. At the same time, central banks in some other countries had appeared likely to move more quickly than the US Federal Reserve to back away from easy money policies and let interest rates rise.

The euro was up a bare 0.05 per cent at US$1.22 on Friday afternoon, compared with a four-month high of US$1.2266 earlier in the week.

The British pound was flat at US$1.4199, continuing its recent struggle to stay above US$1.42.

The US economic data had been seen as the big scheduled news of the week, but it did not move bond and stock markets much when it was released in the morning.

The next big event for the markets is the Fed's monetary policy meeting on June 15 and 16, which could provide clues to when US interest rates will increase.

Fed officials could show projections for stronger economic growth. That would point towards the central bank tapering its purchases of bonds and allowing longer-term interest rates to rise, which would support the dollar, said Joseph Trevisani, senior analyst at FXStreet.com. "The Fed is trying to prepare the markets for the inevitability of tapering," he said.

The major currency that would most likely lose against the dollar is the Japanese yen, Mr Trevisani said, citing trouble with Japan's recovery from the pandemic compared with Europe and Britain.

The dollar gained against the yen early on Friday and hit a seven-week high before easing to show little change on the day. The dollar last traded around 109.77 yen after reaching as high as 110.2.

China's onshore yuan appreciated to as few as 6.358 per dollar, a new three-year high. The dollar was last trading at 6.3616 yuan, down 0.15 per cent for the day.

Kenneth Broux, FX strategist at Societe Generale, said the fact that the yuan has been stronger than 6.40 for three days could be a turning point in Chinese policy that would be positive for the global economy. REUTERS