Dollar finds traction after steep fall, holds above 3-year lows

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Published: February 19, 2018 9:21:50 AM

The U.S. currency has been weighed down by a variety of factors this year, including concerns that Washington might pursue a weak dollar strategy and the perceived erosion of its yield advantage as other countries start to scale back easy monetary policy.

The dollar found some traction on Monday following last week’s steep fall and managed to hold above a three-year low against a basket of currencies.

The dollar found some traction on Monday following last week’s steep fall and managed to hold above a three-year low against a basket of currencies. The dollar index against a group of six major peers was mostly steady at 89.081 after enjoying a modest bounce on Friday following its descent to 88.253, its lowest since December 2014. The U.S. currency has been weighed down by a variety of factors this year, including concerns that Washington might pursue a weak dollar strategy and the perceived erosion of its yield advantage as other countries start to scale back easy monetary policy. Confidence in the dollar has been shaken by mounting worries over the U.S. budget deficit which is projected to balloon to $1 trillion in 2019 amid a government spending splurge and large corporate tax cuts.

While these negative factors for the dollar were not expected to go away any time soon, last week’s downturn was so rapid that some buyers were seen to have waded in to pick up the greenback at perceived bargains. “The slide by the dollar last week was perhaps overdone – for example, the dollar’s drop to the mid 105 yen level was too rapid,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo. “As such we are seeing the dollar rebounding, which is quite natural given the scale of its recent fall.” The dollar was little changed at 106.310 yen after sliding on Friday to 105.545, lowest since November 2016.

The euro was flat at $1.2419. The common currency surged to a three-year high of $1.2556 on Friday before slipping and posting a loss of 0.7 percent. The euro’s strength has played a large role in weakening the dollar this year. Focus was on economic indicators due this week, such as Wednesday’s euro zone purchasing managers’ index and Friday’s German gross domestic product numbers, and whether they could propel the euro higher again. The pound was steady at $1.4035 after shedding 0.5 percent on Friday. The Australian dollar was a shade firmer at $0.7914 after losing 0.5 percent the previous day.

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