Dollar at one-week high on safety bid, euro struggles

Dollar value rose to its highest this week and strengthened by 1.6% in past three weeks

LONDON:

The dollar climbed to a one-week high against its rivals on Tuesday as doubts over the speed and size of U.S. stimulus discouraged risk-taking ahead of this week’s Federal Reserve policy meeting.

Early London trading had a broadly cautious tone, with currencies including the Australian dollar and euro were under selling pressure.

The single currency was further weighed down by early signals that the economy may not rebound as strongly this year as predicted. Germany’s Ifo business climate indicator undershot expectations on Monday and an economic surprise index in Europe is hovering near six-week lows.

“The U.S. economy is probably somewhat stronger than some of the other major economies,” said John Vail, chief global strategist at Nikko Asset Management in Tokyo.

“People will start to think the United States will settle down, which in theory could be dollar-supportive.”

Against a basket of its rivals, the dollar rose 0.2% to 90.65, its highest level since Jan. 20. It has strengthened 1.6% in three weeks thanks to rising U.S. Treasury yields, after a 6% drop between September and January.

U.S. Senate Majority Leader Chuck Schumer said Democrats may try to pass much of President Joe Biden’s $1.9 trillion spending package with a majority vote, but it is not clear if they have the numbers to override Republican objections.

Few, if any, changes are expected to the Fed’s policy statement on Wednesday after its two-day meeting. No new economic forecasts are scheduled to be released.

The dollar’s bounce overnight has also been aided by some unwinding of large short bets. Short dollar positions had hit their highest in almost 10 years, data last week showed.

The euro, which fell on Monday after the Ifo survey showed German business morale slumping, is also trading in a range between support around $1.2050 and resistance at $1.2215. It slipped 0.2% to $1.2126.

Tight liquidity supported the Chinese yuan. One-year onshore yuan forwards rose to their highest levels of 2021, while the onshore spot price edged up 0.1% to 6.4733.