NEW YORK (Reuters) - The safe-haven U.S. dollar edged higher on Friday, garnering support from a selloff in equities around the world, as investors fretted about overstretched valuations.
Global equities fell to two-week lows .MIWD00000PUS, triggered by selling on Wall Street on Thursday. Wall Street stocks continued their decline on Friday, spurring a broad risk-averse environment that led to selloffs in higher-yielding and emerging market currencies.
“Bad news for the world is good news for the dollar,” said Steven Englander, managing director and global head of G10 FX strategy at CitiFX in New York. “Once fears about the equity market intensified, they picked up a more conventional type of mode to buy the dollar.”
Not that the dollar has been the belle of the ball this year. In fact, the U.S. currency has so far lost 0.6 percent against a basket of currencies in 2014 despite a reduction in asset purchases by the Federal Reserve, a supposedly dollar-positive event.
The greenback has also lost 2.5 percent against the yen since last Friday, weighed down by guidance from Federal Reserve officials that the U.S. central bank is nowhere near as close to raising base interest rates as markets had begun to believe.
That comes after two weeks of robust gains against the yen, and the clearest signal yet that European policymakers are on the verge of starting to print billions in extra euros, all of which had encouraged many to believe the dollar was ready to break out higher. That has yet to materialize, though, on a sustained basis.
And for many, the dollar’s gains on Friday could be temporary.
In late New York trading, the dollar index was up 0.1 percent at 79.470 .DXY, but on the week it was down 1.2 percent, its worst weekly showing in nearly seven months.
The dollar was flat against the yen at 101.52 yen.
It trimmed losses a little bit after stronger-than-expected U.S. producer prices data.
U.S. producer prices recorded their largest increase in nine months in March as the cost of food and services surged, pointing to some pockets of inflation at the factory gate. The seasonally adjusted producer price index for final demand increased 0.5 percent last month after slipping 0.1 percent in February.
The euro was flat against the dollar at $1.3885, but it posted its largest weekly gain since September.
The argument at the start of this year was that a recovering U.S. economy and the steady tightening of monetary conditions that would result, while Japan and Europe lag, would see the dollar gain.
Those backing that trade have been shaken out more than once already, however, leaving the market stuck in tight ranges since a burst of activity around an emerging selloff in January.
The Federal Reserve’s minutes of its latest meeting released on Wednesday further added pressure to the dollar, because they seemed to push back expectations of the first interest rate hike to the second half of 2015 from the first quarter.
But Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management in Portland, Oregon, said the Fed’s guidance hasn’t really changed her expectations for the first interest rate hike, which is still mid-2015.
On the Fed’s minutes, “the important thing is to focus on minor words like ‘some,’ ‘several,’ and ‘many,'” she said.
“‘Some’ expressed concern that the way they have expressed polling may inadvertently tell the market that they’re going to move faster than expected. But ‘some’ is only a couple,” Vail added. “Then it talks about ‘several’ saying the economy is actually going to strengthen from here.”
Against emerging market currencies, however, the dollar was higher. The dollar was up 0.5 percent against the South African rand at 10.4720 rand.
The U.S. dollar also rose against the higher-yielding commodity currencies, such as the Aussie dollar, which was down 0.2 percent at US$0.9397