The dollar edged higher versus the yen on Friday on expectations a pivotal speech by Federal Reserve Chairman Jerome Powell will reinforce that the US central bank has not entered a prolonged monetary easing cycle. The greenback hit another 11-year high versus the Chinese yuan on Friday, while the British pound retreated from a more than three-week high.
The New Zealand dollar was the bigger mover on the day, jumping from a three and-a-half-year low after the Pacific nation's central bank chief said he was "pleased" with where interest rates were, hosing down expectations of more immediate rate cuts to follow this month's aggressive easing. Powell gives the highly-awaited speech later Friday at a meeting of central bankers in Jackson Hole. Doubts about further easing emerged after two Fed officials said they saw no reason to cut interest rates again without new signs of economic weakness.
Currency markets have in recent months been driven by global central banks' shift to much more accommodative policy settings as economic demand slows and trade disputes intensify. The dollar ground higher to 106.59 yen on Friday but was stuck firmly in its recent trading range. For the week, the greenback was on course for a 0.2% gain versus the yen.
The dollar index against a basket of six major currencies rose 0.2% to 98.344 and was headed for a second weekly gain.
In onshore trading in China, the yuan fell to 7.0961 per dollar, its weakest since March 2008. Offshore, the yuan weakened to 7.0987.
The British pound fell 0.3% on Friday to $1.2230. Sterling was still on course for a second weekly gain, but uncertainty remains high over how Britain will complete its divorce from the European Union.
The New Zealand dollar rose 0.4% to $0.6390, its biggest daily gain since Aug. 8, and jumped 0.5% to 68.09 yen. Reserve Bank of New Zealand Governor Adrian Orr told Bloomberg TV he can afford to wait on monetary policy after stunning investors earlier this month with a sharp 50-basis-point rate cut.
The euro held steady at $1.1070, on course for its second weekly decline against the greenback.
Expectations that the Fed will cut rates at its next meeting in September are still very high, according to interest rate futures, but the currency market is likely to react if the tone of Powell's comments does not match these dovish expectations.
Besides the Jackson Hole meeting over the weekend, a Group of Seven summit in France from Saturday could also rattle currencies. The European Union hopes to ease tensions with the United States to avoid punitive tariffs on EU autos.
"The rates market is well ahead of the Fed in pricing in aggressive rate cuts, but Powell may not be as dovish as the market is pricing in," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
"Powell will keep the option of rate cuts on the table, but won't lean too strongly in that direction. This would be supportive for the dollar."
Concern about China's economy is growing because US tariffs on roughly $150 billion of Chinese goods will take effect from Sept. 1, about half the value of imports that President Donald Trump had previously threatened duties on. Trump has now set a Dec. 15 deadline for imposing tariffs on the remainder of Chinese goods imported by the United States.
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