Dollar recovers some
ground after five days of falls
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[January 18, 2017]
By Jemima Kelly
(Reuters) - The dollar rebounded on Wednesday after falling for five
days in a row against its currency basket, as investors awaited a speech
by the head of the Federal Reserve later in the day and looked to U.S.
inflation data for clues on the path of interest rates.
After a volatile Tuesday on which sterling rose more than 3 percent for
its best showing against the dollar since at least 1998 <GBP=D4>,
currency markets were calmer on Wednesday, with most of the previous
day's moves reversing some of their course.
Sterling retreated 1 percent. The dollar, which hit a seven-week low of
112.57 yen in early trade in Asia, climbed 0.8 percent to 113.19 yen <JPY=>
after seven straight days of falls.
The dollar index <.DXY>, which measures it against a basket of six major
peers, stood at 100.68, up 0.4 percent, after falling to 100.26 on
Tuesday, its lowest since Dec. 8.
The dollar had surged at the end of 2016 on expectations that fiscal
stimulus proposed by U.S. President-elect Donald Trump would boost
growth and inflation and lead to a faster pace of U.S. interest rate
rises, but it has lost more than 2 percent over the past two weeks.
"We went a bit far on dollar weakness yesterday, so itís natural to have
a correction once in a while (but) the downward trend is intact," said
UBS currency strategist Daniel Trum, from Zurich.
"Markets are finally becoming aware of the potential negative effect of
Trump's policies on the U.S. dollar - at the beginning we had lots of
positive sentiment... but now we see that the focus is shifting more
toward potential trade disputes and potential difficulties in Trump
implementing his policies."
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One of the reasons given for the greenback's weakness this week was a
comment from Trump in a weekend newspaper interview, in which he said
U.S. companies could not compete with China because the dollar was too
strong against the yuan, which was "killing" them.
From London, RBC Capital Markets currency strategist Adam Cole said the
comments might have helped to weaken the dollar at the margins, but they
had not been a major factor as Trump had shown a lack of understanding
of currency markets.
"The fact that he talks about China manipulating the currency is just
not credible... so that reduces the credibility of what he says about
the currency, because itís clearly at odds with anything thatís actually
happening," Cole said.
He added the dollar's recent weakness had been primarily driven by
positioning, which had built up heavily in favor of further dollar gains
and was therefore vulnerable to exaggerated falls on negative news.
Fed Chair Janet Yellen's speech later on Wednesday, to the Commonwealth
Club in San Francisco, could offer clues about the direction of monetary
San Francisco Federal Reserve Bank President John Williams said on
Tuesday he saw a "good case" for three rate hikes this year even without
fiscal stimulus, but if the economy accelerated, the Fed would need to
raise rates faster.
Investors also awaited the U.S. consumer price index, expected to show
inflation at 0.3 percent last month, compared with 0.2 percent in
(Additional reporting by Yuzuha Oka; editing by John Stonestreet and
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