US dollar gains after three-day fall

New York

THE US dollar drifted higher on Friday after three straight days of losses, and riskier currencies fell, as bleak non-US economic data gave global equity markets reason to pause after another week of record highs.

As a safe haven, the US currency tends to rise in times of financial and economic stress that results in lower risk appetite.

The dollar did pare gains and riskier currencies cut losses earlier after upbeat US economic data - a rise in factory activity to its highest in more than 13 years in January and an unexpected 0.7 per cent gain in existing home sales.

The greenback had fallen against a basket of currencies for the past three sessions as market optimism about new US President Joe Biden's fiscal stimulus plans prompted traders to seek riskier assets, producing gains in currencies such as the New Zealand and Australian dollars.

But that trend paused on Friday, as market sentiment pulled back. Global shares slipped off record highs as the US dollar steadied, up 0.1 per cent on the day at 90.209.

The dollar index though, still posted its biggest weekly loss since mid-December.

For the coming Federal Reserve's first monetary policy meeting of the year, strategists expect it to stay dovish, and officials "will probably note signs of slowing in the economy since the December meeting", NatWest Markets said in a research note.

Gloomy economic data also did little to brighten the mood, as UK data showed that British retailers struggled to recover in December.

Economic activity in the euro zone shrank markedly in January as stringent lockdowns to contain the Covid-19 pandemic hit the bloc's dominant service industry hard.

In Friday afternoon trading, the dollar rose 0.3 per cent against the yen to 103.815.

Data from Japan overnight showed that factory activity slipped into contraction in January and the services sector was more pessimistic as emergency measures to combat a Covid-19 resurgence dampened sentiment.

The Australian dollar fell after disappointing retail sales data, but still posted weekly gains. It was last down 0.6 per cent at US$0.7718.

The New Zealand dollar was down around 0.6 per cent at US$0.7179 versus the dollar.

The euro was little changed at US$1.2167. REUTERS