US dollar steadies near two-week lows

London

THE US dollar steadied near two-week lows on Monday, held back by the message from the US Federal Reserve chief that there is no hurry to dial back massive stimulus.

The allure of the greenback took a knock on Friday when Fed chair Jerome Powell said tapering could begin this year, but that the central bank would remain cautious.

Investors have responded by pushing down the dollar index, which measures the currency's value against major rivals. It hit a two-week low at 92.595 before steadying around 92.69, little changed on the day.

The euro was trading at US$1.1800, steady on the day but close to a three-week high touched in Asian trade at US$1.1810. Japan's yen rose to its strongest since last Wednesday at 109.70 per US dollar.

Overall trade in Europe was subdued because of a public holiday in Britain. "We avoided a hawkish surprise at Jackson Hole," said Vasileios Gkionakis, global head of FX strategy at Lombard Odier Group.

"Very short term, there could be more downside pressure on the dollar, but what really matters is the economic data going forward."

For the month, the US dollar index has gained about 0.7 per cent.

The New Zealand dollar and Norwegian krone have led G-10 moves against the US dollar, rising 0.4 per cent and 1.4 per cent respectively, with New Zealand and Norway expected to begin rate hikes within weeks.

Norway's krone strengthened to a seven-week peak against the US dollar on Monday, last trading at 8.6840 kroner per dollar - a third of a per cent firmer on the day. According to Nordea, foreign investors are positioned for further weakness in the Norwegian krone, which means they could be tempted to buy the currency when interest rates rise.

Norges Bank plans a September hike, while swaps markets are pricing in an 80 per cent chance that the Reserve Bank of New Zealand will move in October after a Covid outbreak delayed an August move.

New Zealand on Monday extended a lockdown of its largest city, Auckland, by two weeks.

Purchasing Managers' Index figures in China and the US this week, as well as European inflation data, will update the picture of the global economy as it faces headwinds from steadily climbing virus cases.

The closely watched US non-farm payrolls report out on Friday is a focus for markets, especially the timeline for potential Fed tapering. REUTERS