US dollar rises amid biggest monthly drop in a decade

New York

THE dollar rose against a basket of currencies on Friday as investors covered shorts and took profits after the biggest monthly decline in the currency in a decade.

The dollar index was down 4.1 per cent for July, its biggest monthly percentage fall since September 2010, with most of the drop coming in the last 10 days as new Covid-19 cases surged across several US states and some recent data pointed to an economic recovery losing steam.

On Friday, the dollar mostly held gains after data showed US inflation-adjusted consumer spending has pulled out of April's deep hole but remains below its pre-pandemic level, and the currency strengthened as the session wore on.

After sliding as low as 92.539 earlier, the lowest since May 2018, the dollar index was last up 0.6 per cent at 93.377.

Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York, said: "Interest rates are going down, and that makes the dollar much less attractive as a yield play, but (also) the market is starting to become aware of the political risk of the dollar."

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On Thursday, confidence in the dollar was undermined after US President Donald Trump raised the possibility of delaying the Nov 3 presidential election.

The euro was at US$1.1786, down 0.51 per cent on the day. The currency was little moved by data showing the eurozone economy recorded its deepest contraction on record in the second quarter while the bloc's inflation unexpectedly ticked up in July.

The euro traded below US$1.10 as recently as May, but after European Union leaders agreed this month to a 750 billion euro economic recovery fund - while also taking on debt jointly in a major boost to regional cooperation - many investors have warmed to the currency again.

On a trade-weighted basis, the euro is at its highest since 2014.

The dollar's drop has created space for a rebound in currencies that were hit hard in March, when investors rushed for the safety of the greenback as panic over Covid-19 gripped markets.

Against the Japanese yen, the dollar earlier hit a 41/2-month low but last stood at 105.77, up one per cent.

The British pound was at US$1.3097, up 0.03 per cent on the day. REUTERS