Dollar Climbs For Second Day On Global Economy Fears

Big 5

The dollar firmed for a second straight session on Friday after three consecutive days of losses, bolstered by safe-haven bids on worries about the health of the global economy with slow-downs evident in Europe, Japan, and China.

“Dollar strength is still on the table here going forward and the driver behind that is policy divergence,” said Andrew Dilz, currency strategist at Tempus Consulting in Washington.

“We’re seeing a rate hike in the United States by the second half of the year. At the same time, we’re seeing fractures elsewhere in economic growth such as Europe.”

The dollar index, however, a measure of the greenback’s value against a basket of major currencies, ended the week on a negative note, its first in 13 weeks. The index also posted its largest weekly fall in six months.

In late trading, the dollar index .DXY was up 0.5 percent on the day at 85.842.

“If the dollar stays stronger for a longer, it keeps inflation down and helps the Federal Reserve to keep rates low longer,” said Jack Flaherty, portfolio manager for the GAM Unconstrained Bond Fund of about $17 billion, in New York.

“We are waiting for a more attractive entry point on the dollar.”

The euro, meanwhile, slumped on concerns about the region’s economic weakness, specifically Germany. Worries about the euro zone were echoed by European Central Bank President Mario Draghi, who said on Friday that a slowdown in the euro zone’s economic momentum could weigh further on the reluctance of companies and households to invest.

The euro fell 0.6 percent to $1.2614 EUR=, but still ended the week with its strongest weekly gain since April.

Against the yen, the dollar was flat at 107.80 JPY=, but had its worst weekly loss in seven months.

Global growth worries, which sent stocks and commodities down across the board, pushed the safe-haven yen to a five-week high against the euro. The drop in oil prices to a four-year low below $90 took its toll on the Norwegian crown.

Norway’s currency, which has a strong correlation with oil prices, sank to its weakest in three weeks against the euro as September inflation data also dipped below forecasts. The euro was 0.1 percent up at 8.2270 crowns EURNOK=.

All of that has made markets much more jittery as seen in a jump in the CBOE volatility index .VIX, a measure of investor anxiety, to highs not seen since early February.

Analysts said the pickup in volatility means the dollar’s road higher is likely to get bumpier.

Societe Generale strategist Kit Juckes said the dollar had rallied too far, too fast since July, on the back of strong data and a small change in the U.S. Federal Reserve’s language.

Source : reuters