Dollar strengthens before U.S. GDP data
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[July 27, 2018]
By Tom Finn
LONDON (Reuters) - The dollar rose on
Friday to its highest level in five days as investors waited to see if
U.S. economic growth figures do anything to interrupt its months of
strength.
U.S. President Donald Trump has expressed displeasure over the dollar's
strength, ignoring a custom that U.S. leaders avoid openly interfering
in financial markets.
But the currency on Friday edged up towards a one-year peak scaled last
week, gaining 0.2 against a basket of its peers to reach 94.910, a
five-day high. <.DXY>
The euro meanwhile remained stuck in the red in the wake of the European
Central Bank on Thursday reiterating its plan to slowly end its
accommodative monetary policy.
That helped lift the dollar but the U.S. currency also elicited support
from the 10-year U.S. Treasury note yield <US10YT=RR> which extended its
overnight rise and touched a six-week high of nearly three percent.
Traders are braced for a potentially strong reading of U.S. gross
domestic product (GDP) data, set for release later on Friday.
The U.S. economy is expected to have grown at a 4.1 percent annualized
rate in the second quarter, following 2.0 percent in the first quarter.
But analysts at ING said the dollar could fall after the release because
the GDP figures had been inflated by tariff-related trade activity and
high inventories instead of economic fundamentals.
"If this high U.S. GDP print is more luck than fundamental, then we
won't be surprised to see a 'buy the rumor, sell the fact' type of
reaction – with the dollar broadly weakening after the release," said
the analysts in a note to clients.
At 1130 GMT the euro was down 0.2 percent at $1.1627 <EUR=EBS>.
The single currency had sunk more than 0.7 percent on Thursday after the
ECB said it would end its 2.6 trillion euro stimulus program this year
and keep rates at a record low level through the summer of 2019.
That came after the euro rallied on relief about the United States and
the European Union agreeing to begin talks to lower tariffs.
"There may yet be more political storms for Europe to cope with and the
risk of a global trade war hasn't gone away," said Kit Juckes, a macro
strategist at Societe Generale in London.
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Bundles of banknotes of U.S. Dollar are pictured at a currency
exchange shop in Ciudad Juarez, Mexico, January 15, 2018.
REUTERS/Jose Luis Gonzalez/File Photo
"A stronger euro depends on the Fed sticking to its script and raising rates but
not dramatically above its own estimate of neutral policy," he said.
China's yuan was heading on Friday for its longest weekly losing streak since
November 2015. <CNY=D3>
The yuan has been under sustained pressure since U.S. President Donald Trump
threatened to impose tariffs on all imports from China.
The United States and China presented radically different visions of Beijing's
economic model at the WTO on Thursday, with Washington's ambassador criticising
"the world's most protectionist economy" and his Chinese counterpart describing
a U.S. report as "half-cooked".
The yuan on Friday fell to a 13-month low, shedding half a percent to breach the
key 6.8 per dollar level.
Uncertainty before the Bank of Japan's two-day policy meeting beginning on
Monday capped the dollar versus the yen.
The possibility that the BOJ may tweak its policy has dominated investors'
attention following reports last week it was looking to make its massive
stimulus program more sustainable.
The U.S. currency was 0.1 percent lower at 111.135 yen <JPY=D3>, unable to hold
gains after rising briefly to 111.25.
The pound was down 0.1 percent at $1.3094 <GBP=D3>. It had dropped 0.6 percent
overnight as a stronger dollar and growing uncertainty over Brexit negotiations
offset the positive impact of bets on a Bank of England interest rate rise next
week.
(Editing by Andrew Bolton)
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