Dollar recovers from seven-week low, gains restricted to U.S. policy doubts

NEW YORK (Reuters) – The dollar rebounded coming from a seven-week low on Thursday, still feeling the good effects of a record-setting Dow Jones Industrial Average the day before, although gains were tempered by persistent uncertainty regarding the new U.S. administration’s economic policy plans.

“There’s some more uncertainty using the dollar,” said Sireen Harajli, currency strategist at Mizuho in Los angeles.

“Obviously, the marketplace expects the Fed to tighten while in the second half of the year. That will go on to provide support for any dollar. Although the big question now is whether these expectations on policy are going to be met by actual action.”

The Dow, which hit greater than 20,000 points on Wednesday, held above that key psychological level in mid-afternoon trading, keeping the dollar well supported. But U.S. yields slipped after gains each and every morning session, amid a well-received U.S. 7-year Treasury auction.

While equities and Treasury yields have continued to elevate in the past week, fuelled by U.S. President Donald Trump’s signals of new public spending, the results on the dollar during two weeks is mixed. Investors were concered about other parts of Trump’s policy mix similar to his leanings toward a protectionist trade policy.

Still, investors believed the dollar will certainly make up some lost ground another few weeks, together with the Federal Reserve holding its first policy meeting this coming year on Feb. 1.

“Even if the Fed is just not expected to raise rates further in the course of meeting, the central bank would provide a clearer outlook for rate hikes in 2019, particularly view of the projected U.S. inflation trajectory under Trump’s proposed fiscal stimulus plans,” said James Chen, head of research at Forex.com in Bedminster, Nj-new jersey.

“With any more hawkish hints with the Fed, the dollar could continue to keep rebound.”

In mid-afternoon trading, the dollar index was up 0.3 percent at 100.36, having hit a seven-week low of 99.793 in Asian trading.

The dollar gained 0.9 percent against the yen to 114.35 yen, even though the euro fell 0.4 percent versus the greenback to $1.0700.

The dollar earlier trimmed gains against the two yen and euro after having a weak pair of U.S. economic data, including more initial jobless claims along with a fall in house sales.

Among G10 currencies, sterling may be the biggest gainer the last two weeks, up almost 6 percent from lows hit on Jan. 16. On Thursday though, sterling was down 0.2 percent at $1.2610, despite a thorough reading of Britain’s fourth-quarter growth.

Global fx rates – here