Dollar looks stronger as euro, sterling dip

New York

THE euro and sterling dipped against the US dollar on Friday as investors bet interest rates would stay lower for longer in Europe and Britain while looking ahead to the US monetary policy meeting.

The dollar index, showing its strongest weekly gain since early May, was last up 0.57 per cent on the day at 90.5810 while the euro was down 0.63 per cent at US$1.2099, on track for its biggest weekly decline since the end of April.

A day after the European Central Bank (ECB) stuck to its dovish stance, ECB policymaker Klaas Knot said that flexible fiscal rules would be needed for years as monetary policy remains constrained.

"ECB policymakers are indicating that inflation rates are way below levels that are needed to put upward pressure on rates," said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

"That's cutting away at the euro's recent rally, putting some downward pressure on it. The biggest contributor to the move we've seen overnight is the (euro) weakness as opposed to idiosyncratic dollar positive forces. The dollar's winning the reverse beauty contest," he added.

Sterling was down 0.54 per cent at US$1.4098 as traders worried about slower-than-expected growth as the rapid spread of the Delta variant in Britain raised concerns that much of the country may not be able to fully reopen from a Covid-19 pandemic-related lockdown on June 21, as previously hoped.

Currency markets had been sluggish all week in anticipation of the release of US consumer prices, which rose 5 per cent year-on-year in May. But even with the number above expectations, there was little market reaction. Investors seemed to back the Federal Reserve's assertion that high inflation would be temporary.

Economists see the central bank announcing in August or September a strategy for reducing its massive bond-buying programme, but do not expect it to start cutting monthly purchases until early next year, a Reuters poll found.

Traders were still preparing for volatility around the Federal Open Market Committee (FOMC) meeting, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets

Meanwhile investors left riskier currencies such as the Australian dollar, which was down 0.72 per cent at US$0.7697 after hitting its lowest level for the week while the New Zealand dollar was off 1.01 per cent at US$0.7123 after touching its lowest level since May 4. REUTERS