Dollar little changed on week, Swedish crown extends rally

  • Dollar's recovery fizzles as euro regains upper hand
  • ECB's Draghi sees need for new 'fiscal' tool to fight crisis
  • Swedish crown books best week vs euro in over eight years
Dan Kitwood | Getty Images

The dollar fell for a third day on Friday against a basket of currencies as traders booked gains on its recent run-up tied to the widening interest rate gaps in favor of the United States and signs of cooling growth in the rest of the world.

The Swedish crown continued its rally, as more traders exited their bearish bets on hints that some Riksbank officials are open to raising interest rates despite worries about low inflation

The euro rose for a second day as the greenback retreated further from a 2018 peak reached earlier this week. The single currency, however, was still on track for a loss for a fourth straight week against the dollar.

"People are taking profits. The move is losing some steam," Chuck Tomes, senior investment analyst at Manulife Asset Management in Boston, said of the dollar's rise that started in mid-April and Friday's profit-taking.

An index that tracks the dollar versus six currencies rose initially before selling re-emerged. It was down 0.11 percent at 92.54, after hitting its strongest level of the year at 93.416 on Wednesday. The dollar index posted a slim 0.04 percent loss on the week in late trading, following three straight weeks of gains.

The euro scored a 0.24 percent gain at $1.1942 and a 0.18 percent rise against the Japanese currency at 130.53 yen. On the week, the common currency was set to fall 0.15 percent against the greenback and to eke out about a 0.08 percent gain versus the yen.

A loss of economic momentum in Europe has made policymakers in Europe and Britain more cautious about ending 2008 financial crisis-era policies. On Friday, ECB President Mario Draghi said the euro zone needs a new "fiscal instrument" to help weaker member nations if they are being overly penalized by investors during a debt crisis.

Traders pushed out expectations of a U.K. rate hike to end-2018 and the European Central Bank boosting interest rates in the second half of 2019. U.S. interest rates futures implied traders expect the U.S. Federal Reserve to raise key borrowing costs at least twice more in 2018.

"We are finally starting to see the dollar rise meaningfully and I think this move has further legs to run given the divergence in monetary policy trends between U.S. and Europe," said SEB senior currency strategist Richard Falkenhall, who expects the euro to weaken to about $1.15.

Not all European central bankers seemed willing to keep policy loose. Earlier this week, several policymakers at Riksbank signaled the possibility of higher interest rates in the fall amid a surging economy, helping to spark a rally in the Swedish crown.

The Swedish currency gained 0.70 percent at 8.5891 crowns per dollar, putting on track for the best weekly gain versus the greenback since late June 2017. It recorded its strongest weekly increase versus the euro since February 2010, Reuters data showed.