FOREX-Dollar set for biggest weekly drop in two months

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* Global growth concerns offset Fed rate pause speculation

* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, Dec 7 (Reuters) - The dollar nursed losses on Fridayafter sustaining a large overnight drop as growing speculationthat the U.S. central bank may be readying to signal a pause inits three-year rate hiking campaign was offset by concerns thatglobal growth is slowing.

Expectations the U.S. Federal Reserve was readying to pauserates was bolstered after Fed Chairman Jerome Powell said lastweek that U.S. interest rates were nearing neutral levels, whichmarkets interpreted as signalling a slowdown in rate hikes.

Those hopes received a fresh boost overnight after the WallStreet Journal reported Fed officials are considering whether tosignal a wait-and-see attitude after a likely rate increase attheir meeting in December. urn:newsml:reuters.com:*:nL4N1YB5N6

The greenback was broadly flat against its rivals at 96.83.However, on a weekly basis, the dollar was set for its biggestdrop in more than two months against a basket of its rivals .DXY

"The dollar has come under renewed pressure as market hopesof peak U.S. interest rates have grown and the only reason thedollar is not much weaker from current levels is because globalgrowth concerns have also grown," said Ulrich Leuchtmann, an FXstrategist at Commerzbank in Frankfurt.

Expectations for next year have been marked lower and marketwatchers also expect any escalation in trade tensions to posefresh headwinds. The Organisation for Economic Cooperation andDevelopment estimates that global growth will slow to 3.5percent in 2019 from 3.7 percent this year. urn:newsml:reuters.com:*:nL8N1XV5D7

If the Fed raises interest rates as expected at its Dec.18-19 meeting, it would be the fourth hike this year, andinvestors are waiting to see how much further the tighteningcycle has to run.

Interest rate futures implied traders see less than one rateincrease from the Fed in 2019, compared with previousexpectations for possibly two rate hikes, according to moneymarkets. IRPR

Another factor impeding the dollar's advance has beenfalling U.S. yields which has been chipping away at the yielddifferential advantage the greenback had this year.

The benchmark U.S. 10-year Treasury yield US10YT=RR waslast at 2.896 percent after dipping overnight to its lowestlevel since late August with the yield gap between ten-yearmaturities in U.S. and British government whittled down to 162basis points from 174 basis points a month earlier.

"The guidance going forward will be key to yields and equitymarket moves, which right now foreign exchange markets seem tobe reacting to," said Bart Wakabayashi, Tokyo branch manager atState Street Bank.

On Friday, the dollar was steady against the euro EUR=EBS at $1.1371. Against the Japanese yen JPY=EBS , it tacked on 0.1percent to 112.79 yen.

The Australian dollar AUD=D3 was flat at $0.7216, not faroff a three-week trough of $0.7192 hit on Thursday.

USD and CFTC   https://tmsnrt.rs/2Qhm5gp
(Reporting by Saikat Chatterjee; Additional reporting by DanielLeussink in TOKYOEditing by Raissa Kasolowsky) ((saikat.chatterjee@thomsonreuters.com; +44-20-7542-1713;Reuters Messaging: saikat.chatterjee.reuters.com@reuters.net))

This article appears in: Stocks , World Markets , Politics
Referenced Symbols: EFX ,

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