The U.S. dollar edged up against some major rivals Friday, helping to notch a weekly rise for the greenback.
What are currencies doing?
The ICE U.S. Dollar Index DXY, +0.19% tacked on 0.2% at 89.882, after reaching an intraday high of 90.06, according to FactSet. A gain Friday marks its third in four sessions. For the week, it’s on rose about 0.9%. The index has shown a weekly gain in three of the past four weeks.
The broader WSJ U.S. Dollar Index BUXX, +0.08% was up 0.1% at 83.62, having gained 0.7% on the week.
Against the Japanese yen USDJPY, +0.12% the dollar traded rather rangebound, inching up to last buy ¥106.83 compared with late Thursday’s level of ¥106.75. Investors have been watching for a sustained move above ¥107 to see whether relative dollar strength can stick versus the Japanese currency. On the week, the dollar gained 0.5% against the yen.
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The British pound GBPUSD, +0.0860% continued to defend its modest climb against the buck at $1.3971 from $1.3957, but registered a 0.4% slide on the week. Meanwhile the euro EURUSD, -0.2757% slipped to $1.2301 from $1.2332 late Thursday, and fell 0.9% since last Friday.
Against Canada’s currency USDCAD, -0.5667% the U.S. unit fetched C$1.2656, down from $1.2705. The buck gained 0.8% against its Northern neighbor this week.
What's driving the market?
The dollar’s move has been a story of other asset classes in February, tracking both stocks and Treasury yields closely. While equities have stabilized somewhat after bouts of volatility earlier in the month, yields have edged back from multiyear peaks this week, which weighed on the buck.
The yield on the 10-year Treasury note TMUBMUSD10Y, +0.00% was last down 4 basis points at 2.88%, continuing to ease after St. Louis Fed President James Bullard on Thursday cast doubt that the Fed will raises rates four times this year. On Wednesday, the yield hit a fresh four-year high above 2.95% after minutes showed Fed policy makers believe the U.S. economy is strengthening, interpreted as a sign more rate rises are coming.
That said, the Fed’s latest report sent to Congress didn’t show evidence that the central bank was looking to go beyond its three expected interest rate increases this year. Analysts had begun to up their rate hike expectations as U.S. economic data provided a supportive backdrop.
Read: Here’s why stock-market investors need to keep an eye on the yield curve
Meanwhile, comments from Treasury Secretary Steven Mnuchin drew attention. Mnuchin, in an interview with Bloomberg, brushed aside concerns over rising wages, saying these didn’t necessarily have to trigger a rise in overall inflation.
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In Canada, where the central bank shares its peers’ concerns about persistently low inflation, the January consumer-price index rose to 0.7%, versus the FactSet estimate of 0.5%, reversing a contraction in December. On the year, inflation stood at 1.7% in January, leading the Canadian dollar to briefly jump against its U.S. counterpart before paring some of those gains.
In the eurozone, harmonized CPI across the currency bloc stood unchanged and in line with expectations at 1.3% on the year in January. For the month, consumer prices contracted 0.9%, also matching forecasts, though this had little impact on the euro, market participants said.
Read: Here’s why Europe’s data hiccup still won’t help the dollar
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What are strategists saying?
“The U.S. dollar is steady to higher today and barring a reversal, will close stronger on the week against major currencies,” said currency analysts at Brown Brothers Harriman in a note.
Indeed, “there appears little desire to put the dollar under any real pressure for the moment and more rangey, sideways trading looks likely near term—especially with the U.S. data calendar quite light today,” wrote Scotiabank analysts Shaun Osborne and Eric Theoret. “We maintain a bearish view of the dollar’s broader prospects,” they added, citing rising global growth and yields, and the growing U.S. deficits.
“Today, sterling is the only currency gaining on the greenback,” said BBH, which cited press reports that the U.K. government is leaning towards a free-trade deal such as Canada’s with the EU. “The problem with this position is that some in the EU regard this as cherry-picking and reject it.”
What’s the Fed speaker lineup?
Earlier, New York Fed President William Dudley spoke out in favor of the effectiveness of quantitative easing as a stimulus tool, arguing against a paper from Wall Street economists saying that it only had a modest impact.
Later at the same event, Cleveland Fed President Loretta Mester said that the central bank could look into changing its policy framework later in the year, which could mean a change to its current 2% inflation target.
San Francisco Fed President John Williams said the economy is steadily improving and sees a positive outlook which warrant gradual rate hikes, speaking at the City Club of Los Angeles on Friday.