The dollar was broadly stronger on Friday as dealers unwound short dollar positions after an indicator of US consumer sentiment was seen as reasonably close to expectations, relieving pressure on the currency.
Relieved that the consumer sentiment wasn't as weak as some had feared, dealers were putting on "pre-Fed" positions ahead of the Federal Reserve's policy meeting next week, said Michael Woolfolk, senior currency strategist at Bank of New York in New York. "Rightly or wrongly, they want to buy dollars ahead of the meeting.
This is pure technical positioning," he said.
The University of Michigan's preliminary consumer sentiment index for September ticked lower to 95.8 from August's 95.9. Analysts, however, had expected a reading of 96.5.
"The whole market is long euros, so the euro sags even after pretty weak US numbers," said Tommy Molloy, trader at Bank Leumi in New York.
Long positions are effectively bets a currency will strengthen and short positions are bets it will weaken.
At around noon (1600 GMT), the euro was slightly weaker at $1.2172, in the middle of the $1.1950 to $1.2450 range that has held sway for several months.
The dollar rose slightly against the Swiss franc at 1.2704 francs while sterling was flat at $1.7921.
The Fed is widely expected to deliver its third quarter percentage point rate hike since June when it meets next week.
The rebound in bond yields on Friday after plunging the previous session is also said to be helping the dollar.
Recent indicators, such as below-consensus regional manufacturing data and a tame national inflation report on Thursday, have cast further doubt on the strength of the US economy and the pace of rate increases to come. But today's consumer sentiment number wasn't as weak as many had feared.
"It really didn't change the market sentiment all that much and was quite close to what was expected. (The dollar) really didn't move," said Grant Wilson, senior trader at Mellon Bank in Pittsburgh.
The dollar also firmed against the yen, up at 110.00 yen, and posted even greater gains against the Canadian dollar after below-consensus Canadian inflation data. Headline and core consumer prices rose at a slower rate last month than economists had expected, casting doubt over the Bank of Canada's rate-raising policy.
The dollar was about 0.8 percent stronger at C$1.3003.
The dollar looks like it is heading into the weekend slightly firmer from week-earlier levels, as the market gears up for the Fed's policy meeting on Tuesday.
While the Fed is widely expected to raise its federal funds target rate to 1.75 percent, there is uncertainty over the pace of future increases.
The Fed has said it aims to boost monetary policy to a more neutral level in a "measured" fashion, which many people had assumed meant a quarter point at every meeting to year's end.
But interest rate futures markets have begun to price in the possibility the Fed may not raise rates at its policy meetings in November and December. The Fed does not meet in October.
US interest rates are currently 1.5 percent, still half a percentage point below euro zone rates even after two US hikes since late June. Low US rates put downward pressure on the dollar as investors look elsewhere for higher yield.
"Even though short rates are at only 1.5 percent, if economic growth is moderate, inflation isn't rising and credit growth is weak, why tighten?" analysts at Bridgewater Associates, a currency management firm, wrote in a research note on Friday. "They (Fed policy makers) are about to reach the point where they will pause and see what develops."
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