FOREX-Dollar steadies, index heads for worst weekly run in decade

FOREX-Dollar steadies, index heads for worst weekly run in decade

Reuters  | Aug 14, 2020 19:40

FOREX-Dollar steadies, index heads for worst weekly run in decade

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
* Dollar supported as risk appetite wanes
* Dollar index heads for longest weekly losing streak since
2010
* Yen headed for worst week in two months after U.S. yields
jump

By Ritvik Carvalho
LONDON, Aug 14 (Reuters) - The dollar steadied on Friday as
U.S. bond yields rose and lacklustre Chinese economic data
curtailed risk sentiment, slowing a selldown of the U.S.
currency, which by one measure was headed for its longest weekly
losing streak since 2010.
Tepid demand in a long-dated U.S. government bond auction on
Thursday extended an surge in Treasury yields that has drawn
some investors - especially from Japan - back to dollars.
Meanwhile, China reported retail sales unexpectedly fell for
a seventh month in July and industrial output missed
expectations. The mood had the dollar close to snapping a seven-week
losing streak against the risk-sensitive Aussie AUD=D3 , which
settled around $0.7144, flat for the week.
"Mixed tone across FX markets at the end of the week as
investors lack a clear directional catalyst in these quiet
summer markets," said Viraj Patel, FX and global macro
strategist at Arkera.
U.S. retail sales data today may inject a bit of impetus,
Patel said - especially as it will test the narrative that the
U.S. economy will lag in the post-pandemic recovery.
"Dollar crosses will continue to be driven by U.S. yields
and whether the corrective move higher - and mini U.S. bond
market tantrum - continues into next week," Patel said.
The yen JPY= was on course for its poorest week against
the dollar in two months and down about 0.9% at 106.74 from last
Friday's close.
The biggest loser this week has been the kiwi NZD=D3 ,
which was under pressure at $0.6538, as New Zealand deals with a
fresh coronavirus outbreak. Moreover, the central bank this week
flagged increased bond buying and again mentioned the prospect
of negative rates.
Against a basket of currencies =USD , the U.S. dollar
remains 0.2% lower for the week but seems to have arrested a
slide that has it about 9.5% below its March peak. A Refinitiv
=USD index showed the dollar was headed for its eighth week of
losses, its longest weekly losing streak since June 2010.

DIVERGENCE
Preliminary European Union employment numbers showed the
biggest drop ever recorded in employment in the second quarter.
Data also confirmed a record drop in the EU's gross domestic
product last quarter, which fell by 12.1% compared with the
first three months of the year. U.S. retail sales figures at 1230 GMT are the next set of
data for investors to parse for signs of divergence between the
U.S. and European recoveries.
Growing faith in Europe's rebound and concern about the U.S.
response as the coronavirus spreads and politicians remain
deadlocked over the next relief package have bolstered the euro.
A decline last week in the number of applications for
unemployment benefits in the United States to below one million
provided a note of cheer but, with some 30 million out of work
and stimulus plans stalled, the outlook remains grim.
The euro EUR=EBS slid 0.1% to $1.1806 in early London
deals on Friday and the pound GBP=D3 was higher at $1.3072, as
investors sought to focus on a rebound in growth in June rather
than a stunning 20% quarterly contraction. Another element of divergence has opened between Australia
and New Zealand, whose central banks are striking quite a
different tone.
The Reserve Bank of New Zealand sparked a bond rally this
week by promising to extend its own purchases and, next week,
speed them up as well.
But while the RBNZ talked about sub-zero rates, Reserve Bank
of Australia Governor Philip Lowe reiterated on Friday that
fiscal support was what was needed. "The key takeaway from the RBNZ meeting is that they're
preparing more loosening measures to use if necessary, including
not only negative rates but also buying foreign assets – a
deliberate effort to weaken the currency," said Marshall
Gittler, head of investment research at BDSwiss.
"The market is just doing it for them, thereby saving the
RBNZ some money."

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