Dollar wallows near 1-week low; policy concerns limit the bounce

The dollar wallowed near a one-week low against a basket of currencies on Friday after upbeat economic data failed to lift Treasury yields, with underlying concerns about US trade policy capping greenback attempts to bounce.

The dollar index against a group of major currencies stood flat at 100.470 after hitting 100.410 overnight, its lowest since February 9.

The index had soared to a one-month high of 101.760 as recently as Wednesday, as US Federal Reserve Chair Janet Yellen spoke in support of a near-term rate hike and the markets also saw robust US inflation and retail sales data.

Indicators released on Thursday shed more positive light on the US economy, with the Philadelphia manufacturing index on jumping to a 33-year high.

But the robust data was unable to sustain a rise in Treasury yields, which had already climbed to three-week highs mid-week, leaving the dollar to buckle.

“The dollar did rally in spurts this week but the surge lacked strong conviction. For example dollar/yen failed to take out the 115.00 threshold,” said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.

“This shows that the market is still trying to work out the implication of President Trump's policies, of which his approach to trade may not be supportive for the dollar.”

Furthermore, the troubles facing US President Donald Trump's administration, highlighted by the resignation of National Security Adviser Michael Flynn earlier this week, were also a source of investor concern.

The greenback was 0.1 per cent higher at 113.340 yen after losing 0.8 per cent overnight. It had briefly risen to a two-week peak of 114.955 on Wednesday.

“While Japan avoided being criticised for the yen at the recent summit, the fact that it remains vulnerable to scrutiny over currency levels has not changed,” said Makoto Noji, senior strategist at SMBC Nikko Securities.

Currency issues were not high on the agenda during a two-day summit between President Trump and Japanese Prime Minister Shinzo Abe last weekend. The U.S. President had recently lambasted trading partners for weakening their currencies to the disadvantage of the United States.

“The yen is still weak relatively speaking and fears that Japan could come under fire any time over currencies is limiting the dollar's advances against it,” Noji said.

The euro was steady at $1.0674 after climbing 0.7 per cent the previous day. It was on track to eke out a 0.2 per cent gain against the greenback this week, having been hit the previous week by perceived political risks to the euro zone.

Sterling extended modest overnight gains to rise 0.1 per cent to $1.2502.

The Australian dollar added 0.1 per cent to $0.7699. The Aussie was not far from a three-month peak of $0.7732 set on Thursday on strong employment data.

The Aussie has gained steadily this year thanks to the draw of the country's relatively high yields and rise in the price of iron ore, the country's biggest export.

The New Zealand dollar was steady at $0.7207. The kiwi was poised to end the week little changed after slipping to a 3-1/2-week low on Tuesday after the Reserve Bank of New Zealand dashed expectations for a rate hike late in 2017.

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