Article Highlights

  • Dollar index steady after pulling back from 2-week low
  • Fundamentals seen supporting dollar, US yields near 6-wk high
  • Euro hit overnight after ECB stays on policy course
  • Dollar/yen capped ahead of next week's BOJ policy meeting
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The dollar steadied on Friday following a rally against its peers overnight, as investors awaited U.S. economic growth data, which could give a fresh catalyst for direction amid a wider focus on global monetary policy and bond yield direction.

The dollar index, which measures the greenback’s strength against a basket of six major currencies, stood little changed at 94.719.

It had risen 0.4 percent overnight to pull away from a two-week trough of 94.084 as the euro slid sharply after the European Central Bank kept to its planned timetable to move away from its accommodative monetary policy.

While the euro’s downturn provided the dollar with a significant lift, the U.S. currency enjoyed support from other quarters as well.

The 10-year U.S. Treasury note yield extended its overnight rise and touched a six-week high of 2.988 percent as traders braced for a potentially strong reading of U.S. gross domestic product (GDP) data, set for release later on Friday.

The U.S. economy is expected to have increased at a 4.1 percent annualized rate in the second quarter, following a 2.0 percent pace of growth in the first quarter.

The dollar is higher across the board and this reflects the lift it is enjoying from fundamental factors, notably higher U.S. yields and Wall Street shares amid improving risk appetite,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“The dollar will remain caught between the lift from such fundamental factors and downward pressure from political factors, such as President Trump’s attempts to keep dollar strength in check.”

The euro was virtually flat at $1.1643.

The single currency had sunk more than 0.7 percent on Thursday following the ECB’s policy meeting. Taking the wind out of euro bulls’ sails, the ECB said it would stay on course to end its 2.6 trillion euro stimulus program this year and keep rates at a record low level through the summer of 2019.

The euro earlier on Thursday had advanced in relief after the United States and the European Union agreed to begin talks to lower tariffs, soothing trade concerns.

The U.S. currency was 0.2 percent lower at 110.99 yen , unable to hold gains after rising briefly to 111.25.

Uncertainty ahead of the Bank of Japan’s two-day policy meeting beginning on Monday capped the dollar versus the yen, amid speculation the central bank could mull taking steps to make its massive stimulus program more sustainable.

The possibility the BOJ may tweak its policy has dominated investors’ attention following reports last week it was looking to make its accommodative policy more sustainable.

Still, the yen’s gains thus far were smaller relative to a similar spike seen at the start of 2018, when speculation the BOJ was poised to begin normalizing monetary policy triggered a massive rise in the Japanese currency.

Upward pressure on the yen stemming from monetary policy concerns is likely to be limited, as it would be difficult for the BOJ to conduct successive rate hikes when domestic economic activity and inflationary pressures are weak,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The dollar was 0.4 percent lower against the yen for the week, during which it pulled away from a six-month high above 113 yen scaled on July 19.

The dollar’s retreat came after U.S. President Donald Trump expressed displeasure over the currency’s strength and amid speculation that the BOJ could scale back its massive monetary stimulus soon.

The pound was flat at $1.3113. It had dropped 0.6 percent overnight as a stronger dollar and mounting uncertainty over Brexit negotiations offset the positive impact of bets on a Bank of England interest rate hike next week.

The Australian dollar was 0.15 percent higher at $0.7388, recovering a bit of ground after the previous day’s tumble. The Aussie, often seen as a liquid proxy of China-related trades, had fallen 1 percent on Thursday amid a drop in Chinese equities.