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US$ bulls wary after biggest weekly drop in months

London

THE US dollar steadied on Monday after posting its biggest weekly drop in two months last week as investors grew cautious about the near-term outlook for the greenback after dovish comments by US policymakers.

Against a basket of its rivals, the greenback was broadly steady at 96.48 after falling nearly half a per cent last week, its biggest weekly drop since late September.

The US dollar has been the surprise winner of 2018, having risen nearly 10 per cent from April lows thanks to a combination of interest rate hikes and strong data. But the growing view that US economic growth may have peaked has begun to eat away at these gains.

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"Dovish Fed comments on Friday gave some encouragement to investors to take profits on dollar positions which have risen in recent weeks," said Jane Foley, head of FX strategy at Rabobank based in London.

Richard Clarida, the Fed's newly appointed vice-chair, cautioned about a slowdown in global growth, saying "that's something that is going to be relevant" for the outlook for the US economy.

Federal Reserve Bank of Dallas president Robert Kaplan, in a separate interview with Fox Business, also said that he is seeing a growth slowdown in Europe and China.

Their comments come at a time when long US dollar positions have swelled to their biggest levels in nearly two years despite a modest decline last week, according to futures data.

Latest US Treasury holdings data also weighed on the greenback. China and Japan, the two biggest foreign US creditors, cut their US Treasury holdings further in September as foreign appetite for Treasuries declined.

Despite the US dollar's weakness, the euro failed to rally significantly above the US$1.14 levels as concerns over negotiations between Brussels and Rome over Italy's budget plans sapped broader appetite. It was changing hands at US$1.1422.

Elsewhere, sterling remained in the spotlight with the currency expected to remain under pressure until the market gets more clarity on the progress of the Brexit deal.

It was 0.2 per cent firmer against the US dollar at US$1.2864 after a one per cent drop last week as British Prime Minister Theresa May's draft EU divorce deal has met with stiff opposition with several ministers resigning. REUTERS