Dollar heads for flat
week as inflation trade revives
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[January 27, 2017]
By Patrick Graham
(Reuters) - The dollar recovered more ground against a basket of
currencies on Friday, catching up with rises in U.S. stock markets and
bond yields as the trade on U.S. President Donald Trump's growth
policies moved back to pole position in investors' thinking.
The dollar has climbed for two days, pulling it back from 7-week lows
and leaving it flat on the week, as markets refocused on Trumpís
pro-business policies and expectations the currency would gain from a
rise in border tariffs, tax reform and future spending.
The 4 percent fall in the dollar in the three weeks from Jan. 3 was a
reflection of doubts about how the new presidentís policy mix will play
out for the currency, particularly after both Trump and Treasury
Secretary nominee Steven Mnuchin hinted at concerns over its strength.
But many analysts cast it simply as a necessary adjustment to market
positioning before the dollar can deliver on what were widespread
expectations of a strong rally in 2017.
"The market is back on this positive story about Trump's tax and
spending policies. It is gaining on a broad basis," said Antje Praefke,
a strategist with Commerzbank in Frankfurt.
"Whether these policies are positive for the dollar in the long-term may
be a different story. You need more information about what he will
actually do and how that will play out and impact the dollar. But for
now the market buys the growth story."
The dollar index <.DXY>, which measures its strength against six major
peers, gained 0.2 percent to 100.57 in morning trade in Europe, up from
a seven-week low of 99.793 hit on Thursday.
It was marginally lower on the day at $1.0694 per euro <EUR=> and half a
percent higher at 115.14 yen.
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An employee of a bank counts US dollar notes at a branch in Hanoi,
Vietnam May 16, 2016. REUTERS/Kham - RTSEG6P
A number of banks, including Bank of America Merrill Lynch and France's
Societe Generale, predicted a revival of the dollar rally in weekly
notes on Friday.
"There's a sense of expectations ahead of U.S. GDP later today but also
a sense of recoupling with the moves that we've seen on yields and
stocks," said Viraj Patel, a strategist with Dutch bank ING in London.
"It's just a market realization that no matter what officials say (about
the dollar's strength) there is enough there to be bullish. You cannot
deny the impact of the moves they are going to make to reflate the
The Swiss franc, held down by intervention by the Swiss National Bank in
the past year, hit a seven-month high on Thursday on news of Johnson &
Johnson's $30 billion takeover of Actelion.
It was steady at 1.0683 per euro on Friday.
"There was a lot of chatter about this deal yesterday," said a dealer
with one bank in London.
"Whether they are actively doing it at the moment we can't say but the
franc has certainly proved far stronger than other currencies against
the dollar as well."
(Editing by Jeremy Gaunt)
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