Dollar retreats, on track for biggest weekly loss since mid-January

THE US dollar slid from a 2½-month high versus the Japanese yen on Friday (Mar 3), on track for its largest weekly loss since mid-January against a basket of six major currencies, as traders stepped back to gauge the path for Federal Reserve policy.

Analysts said the market has for the most part priced in the prospect of a higher terminal fed funds rate after the recent run of upbeat US economic data.

The yen, which is sensitive to US-Japan long-term rate differentials, looked set to halt its six-week losing streak against the dollar, as it gained strength with 10-year US yields retreating from a nearly four-month high close to 4.1 per cent.

“The dollar has essentially enjoyed four full weeks of gains that completely erased the losses in January,” said Juan Perez, director of trading at Monex USA in Washington.

“As markets look to end a tough Q1, there is optimism growing as the focus shifts from the pains associated with inflationary pressures and to the potential for a prosperous second half of the year despite central bank tightening via interest rates.”

Analysts polled by Reuters said the recent dollar strength was likely to be temporary, and the currency will weaken over the course of the year as the global economy improves and on expectations that the Fed will stop hiking interest rates well ahead of the European Central Bank.

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The dollar eased 0.4 per cent to 136.26 yen, after climbing to 137.10 on Thursday, the highest since Dec 20. For the week, the dollar was down 0.4 per cent versus the yen, its worst weekly showing since mid-January.

The euro rose 0.3 per cent to US$1.0628, after starting the week at a nearly two-month low of US$1.0533.

Sterling rose 0.7 per cent against the dollar to US$1.2032, on track for a 0.4 per cent gain on the week, its best weekly performance since Jan 20. REUTERS