Dollar Falls But Upcoming Gain Seen
The dollar slipped on Friday, but was still on track for its biggest weekly gain in a month, with dealers wary of adding much to extended bets against the greenback with so much uncertainty surrounding the credit market.
The dollar broadly fell on reports showing the biggest drop in U.S. industrial production since January and lower-than-expected foreign investment in U.S. assets in September.
Yet, the dollar rose against the yen as U.S. stocks added to modest gains on the day.
"The renewed bout of credit risk and associated increase in risk aversion is clearly dominating trading this week," said Jay Meisler, principal of Global-view.com, an online forum for traders and investors.
"The FX market is currently equity dependent," he said.
The euro edged up 0.1 percent from late Thursday, to $1.4630, a little more than a cent away from record highs of $1.4752 hit last week, according to Reuters data.
Against the Swiss franc, the dollar was down 0.4 percent to 1.1178 Swiss francs, after earlier touching 1.1166, the lowest level since April 1995, according to Reuters data.
The New York Board of Trade's dollar index, which tracks the greenback's performance against a basket of six major currencies, was down a touch on Friday at 75.939 but it was up 0.7 percent on the week.
At current levels, the index's gains on the week were the most since early October.
Against the yen, the dollar ticked up 0.2 percent to 110.80 yen. On Monday, the greenback dropped to a 18-month low of 109.10 yen.
The euro was also up 0.4 percent to 162.10 yen.
Overnight the yen had strengthened as jittery investors took cues from falling Asian and European stock markets to continue a move out of relatively risky carry trades funded by cheap borrowing in the Japanese currency.
The dollar has fallen about 5 percent against the euro since mid-September, when the Federal Reserve slashed its benchmark interest rate by 50 basis points to stave off a possible recession.
Futures markets currently reflect a slightly lower chance of a December rate cut after comments from two Federal Reserve officials on Friday downplayed high expectations for a 25 basis point easing in monetary policy.
Despite the stabilization this week and the reduced chances of another Fed rate cut, many economists, however, said the dollar's long-term declining trend remains intact.
October "industrial production adds to the bearish dollar overall," said David Watt, senior currency strategist at RBC Capital Markets in Toronto.
"It is reinforced by the TIC long-term numbers, though that is a little bit dated," he added.
The Treasury International Capital report for September showed a lower-than-expected flow of long-term capital into the United States of $26.4 billion, below expectations of $70 billion.
Though foreigners flipped from being net sellers of U.S. government and corporate bonds and stocks to net buyers, the total flow, taking into account the amount of foreign securities that U.S. investors bought, was not enough to fund the $56 billion U.S. trade deficit in September.
"The U.S. clearly has a funding problem for its massive current account deficit, and as global demand for the dollar continues to be well below the supply, we expect the dollar to continue its downtrend," said David Powell, currency strategist with IDEAglobal, in a note.