© Reuters. FILE PHOTO: A dealer displays US dollar bills at a currency exchange booth in Karachi, Pakistan, December 3, 2018. REUTERS/Akhtar Soomro
Written by Tom Westbrook
SINGAPORE (Reuters) – The dollar swung around a two-week low on Thursday, dragged down by Federal Reserve Chairman Jerome Powell’s insistence that interest rate increases were off the radar, while the pound rose on a return of optimism. .
Overnight, the Fed sounded confident about the economy in its statement. Then Powell was more circumspect, saying in his press conference that the price increases were “out of reach” and that the labor market still had “some ground to cover”.
The dollar initially rose after the statement, before falling to a two-week low of $1.1849 per euro after Powell’s comments.
It appears to have taken a rest from a month-long steady rally, and the Euro is now above its 20 day moving average.
Analysts said the market’s mood improved after Bloomberg reported that China’s securities regulator held a phone call to banks to allay concerns about the recent sell-off, and also put some support behind riskier currencies overnight.
“The reaction has been to Mr. Powell, who has been seen as pacifist,” said Ray Atrell, head of FX strategy at National Australia Bank (OTC): “Improving risk sentiment should be linked to a weaker dollar,” he added, noting the rebound in US-listed Chinese tech names and recent gains in reopening exposed businesses.
It fell for the third consecutive session on Wednesday and hit a two-week low of 92.233, then settled near that level at 92.257 early in the Asian session.
The pair recovered from its decline on Tuesday, although it traded slightly ahead of local markets opening on Thursday, at 6.4902 against the dollar.
The Australian dollar made a slight gain overnight, although it was delayed by the prolonged shutdown of Sydney which is set to affect the national economy.
The latter sat at $0.7372 while rebounding from its overnight lows, hovering around $0.6959.
The Japanese yen found support this week from nerves on the delta variant of the coronavirus and the tension in the Chinese stock market, settling at 109.73 per dollar.
Sterling has been another big mover this week, as traders were encouraged by early signs that England’s ending of most coronavirus restrictions last week was not a disaster. [GBP/]
Sterling rose nearly 2.5% from a low of $1.3572 last week to trade at $1.3906 on Thursday, and touched a nearly four-month high of 84.97 pence to the euro overnight.
It’s up 3% from last week’s four-month low on the yen, and is on a bit of a tear against the Australian dollar, up 1.2% on the week so far and over 6% year-to-date.
Britain’s infection numbers rose on Wednesday, but staggered rates tend to fall – although experts and Prime Minister Boris Johnson, warned it was too early to draw conclusions.
“Right now, the UK (COVID) situation is very good and I think that has had an impact,” said NAB’s Atrell.
On Thursday, traders await German employment and inflation data, European opinion polls and US Q2 GDP – forecasts vary widely but the consensus is for 8.5% annual growth.
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