US dollar extends two-week winning streak

London

THE dollar rose on Monday, building on two consecutive weeks of gains, as investors bet that trade war rhetoric and a strong US economy would continue to drive the currency higher.

Against a broad basket of currencies, the dollar rose a third of a percent to 95.451 and is within striking distance of more-than-one-year peak of 95.652 reached on July 19.

"The US economy is doing well and the Fed is moving towards a more predictable path of interest rates than earlier which has prompted us to change our underweight positions on US debt to neutral in some portfolios," said Paul Eitelman, a senior investment specialist at Russell Investments.

The dollar's gains has been more pronounced against emerging-market currencies as investors bet that an escalation in trade war concerns would hit these export-oriented economies harder.

Since mid-April, the dollar index has gained 6 per cent while an emerging-market local currency bond exchange traded fund has fallen more than 10 per cent over the same period.

The dollar gained against emerging-market currencies, including the Turkish lira, which weakened 0.6 per cent to a record low of 5.12 to the dollar.

The United States announced late on Friday it was reviewing Turkey's duty-free access to U.S. markets - a move that could affect nearly US$1.7 billion of Turkish imports.

Chinese stocks slumped nearly 2 per cent as Beijing proposed tariffs on US$60 billion worth of US goods on Friday, while a senior Chinese diplomat cast doubt on prospects of talks with Washington to resolve the conflict.With Friday's US jobs data broadly indicative of a strong economy and July inflation data due later this week, markets are primed for a further increase in US Treasury yields, which should support the dollar.

Inflation data this week should support that trend. ING strategists believe a report later this week will show that US inflation has reached 3 per cent, indicative of a strong economy.

A Reuters poll predicts a similar increase.

That has also prompted hedge funds to only slightly trim their dollar long positions this week with overall bets still at their biggest in more than a year and a half.

"In currencies, we have seen defensive currencies like the US dollar strengthen," said James Bateman, CIO of the multi-asset strategy team at Fidelity Investments. REUTERS