Dollar extends rally as risk sentiment improves

[April 14, 2016]  By Anirban Nag

LONDON (Reuters) - The dollar rose on Thursday, having posted its biggest one-day gain in over a month a day before, as improved risk sentiment led investors to trim positions in low-yielding currencies like the yen and the euro.

A surprise policy easing by Singapore's central bank, citing a tougher outlook for economic growth, also boosted stocks in Asia and gave the dollar a lift against the city-state's currency.

The dollar index tracking the unit against a basket of six major currencies was up 0.2 percent at 94.911 <.DXY>, after rallying nearly 1 percent on Wednesday.

The euro edged down to $1.1265 <EUR=>, way below a six-month high of $1.1465 touched on Tuesday. The dollar was flat against the yen at 109.30 yen, pulling away from a 17-month trough of 107.63 set a few days ago.

The focus will be on U.S. consumer price inflation data and any upside surprise could push up Treasury yields and provide support to the greenback, traders said.

Data released on Wednesday showed an unexpected fall in U.S. retail sales in March yet it failed to make much of a dent on the rallying dollar.

"Risk sentiment is broadly positive and that is giving reason to investors to move away from low-yielding currencies like the euro and the yen," said Yujiro Goto, currency strategist at Nomura.

"The U.S. retail sales data yesterday were weaker, but that barely impacted the dollar. It shows that long dollar positions have more or less been cut and negative news is having limited impact."

The yen got no help from Bank of Japan Governor Haruhiko Kuroda, who said in New York that the central bank was ready to expand monetary stimulus again if recent weaknesses in inflation expectations persist. He stressed there wee "many ways" to do so to achieve his ambitious price target.

Kuroda made the remarks ahead of a meeting of Group of 20 financial leaders in Washington, where currency policy is seen high on the agenda in the face of subdued global growth.

The Federal Reserve has highlighted global uncertainty as the major bar to another hike in interest rates. So, when upbeat trade data out of China this week and a pick-up in commodity prices seemed to lessen the risk of a global downturn, dollar bulls figured there was now more chance of a move higher.

Analysts at CitiFX said recent developments might serve as an encouragement for investors to warm up to the idea of pricing in more tightening.

Just this week, Richmond Fed President Jeffrey Lacker, San Francisco Fed President John Williams and Philadelphia Fed President Patrick Harker all suggested several hikes were possible this year.

In Europe, sterling <GBP=D4> regained some lost ground after Bank of England policymakers voted 9-0 to keep interest rates at a record lows, quashing speculation ahead of the meeting that one or more members could vote to cut rates. [GBP/]

(additional reporting by Lisa Twaronite and Ian Chua; Editing by Tom Heneghan)

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