May 22, 2018 / 2:40 PM / 6 months ago

FOREX-Dollar rally pauses as focus turns to Fed minutes

    * Dollar index trades below previous day's five-month high
    * Euro eases but remains above six-month lows set on Monday
    * Near-term focus on Fed minutes due Wednesday
    * Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

 (Adds comment, FX table, updates prices in text, changes
byline, dateline; previous LONDON)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 22 (Reuters) - The dollar retreated on Tuesday
after six straight days of gains, as U.S. Treasury yields dipped
and investors looked for fresh incentives to buy the currency in
the wake of its nearly 7 percent rally since mid-February.
    The dollar's recent uptrend has been supported by generally
upbeat U.S. economic data that has kept the Federal Reserve on
track to raise interest rates at least two more times this year.
    In contrast, other major central banks such as the Bank of
Japan and European Central Bank are not in a tightening mode.
    "The U.S. dollar may require a fresh dose of catalysts to
sustain its nascent resurgence," said Mazen Issa, senior FX
strategist at TD Securities in New York.
    "Against a backdrop of higher rates, including the
overly-emphasized 3 percent mark in U.S. 10-year yields and a
very fully-priced Fed, the dollar may have exhausted the
divergence narrative," he added.
    The divergence referred to the difference in monetary
policies between the Fed and other central banks, which has been
a major prop for the dollar.
    In mid-morning trading, the dollar index was down 0.1
percent at 93.584, after hitting a five-month high on
Monday. The index, which measures the dollar against a basket of
currencies, was on track for its largest daily loss in two
weeks.
    The dollar was supported on Monday on signs that the United
States and China were making progress to resolve their trade
conflict. On Tuesday, China said it would cut import tariffs for
automobiles, opening greater access to the world’s largest auto
market, in a further sign of easing trade tensions.
    U.S. Treasury yields pulled back from last week's seven-year
highs, encouraging traders to cash in bullish dollar bets, said
Gavin Friend, senior markets strategist at NAB in London.
    U.S. 10-year yields still traded above 3 percent on Tuesday.
    TD's Issa believes Wednesday's release of the minutes of the
last Fed policy meeting could prove a major driver, though
possibly a negative one.
    "The minutes should contain dovish undertones as we are
likely to see a degree of comfort on an inflation overshoot,"
Issa said.
    In other currency pairs, the dollar rose against the euro,
which slipped 0.1 percent to $1.1778 amid political
uncertainty in Italy. The country's anti-establishment 5-Star
Movement and the far-right League on Monday proposed Giuseppe
Conte as prime minister to lead their coalition government.

    Analysts at Rabobank said they had lowered their target for
euro versus the dollar to $1.15.
    "While dollar strength is still a factor, euro weakness is
... a large part of the story," the bank said in a note to
clients. 
    The dollar, meanwhile, slipped 0.1 percent against the yen
to 110.965, after touching a four-month peak on Monday.
    
    ========================================================
    Currency bid prices at 10:23AM (1423 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
                                              Session                                           
 Euro/Dollar      EUR=        $1.1783        $1.1790     -0.06%         -1.78%      +1.1829     +1.1758
 Dollar/Yen       JPY=        110.9600       111.0400    -0.07%         -1.52%      +111.1800   +110.8000
 Euro/Yen         EURJPY=     130.74         130.93      -0.15%         -3.28%      +131.3400   +130.6100
 Dollar/Swiss     CHF=        0.9937         0.9970      -0.33%         +2.00%      +0.9990     +0.9935
 Sterling/Dollar  GBP=        1.3437         1.3428      +0.07%         -0.56%      +1.3491     +1.3413
 Dollar/Canadian  CAD=        1.2765         1.2785      -0.16%         +1.49%      +1.2791     +1.2742
 Australian/Doll  AUD=        0.7591         0.7581      +0.13%         -2.69%      +0.7605     +0.7574
 ar                                                                                             
 Euro/Swiss       EURCHF=     1.1710         1.1758      -0.41%         +0.18%      +1.1771     +1.1705
 Euro/Sterling    EURGBP=     0.8767         0.8778      -0.13%         -1.29%      +0.8789     +0.8759
 NZ Dollar/Dolar  NZD=        0.6939         0.6944      -0.07%         -2.07%      +0.6974     +0.6934
 Dollar/Norway    NOK=        8.0480         8.0481      +0.00%         -1.94%      +8.0755     +8.0258
 Euro/Norway      EURNOK=     9.4843         9.4916      -0.08%         -3.70%      +9.5075     +9.4746
 Dollar/Sweden    SEK=        8.6758         8.6716      -0.02%         +5.78%      +8.7049     +8.6389
 Euro/Sweden      EURSEK=     10.2230        10.2250     -0.02%         +3.90%      +10.2411    +10.1988
 
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Tom Finn in London
Editing by Paul Simao)
  
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