Monday , July 26 2021

The dollar bull is wary after the biggest weekly decline in 2 months

The dollar was steady on Monday after posting its biggest weekly decline in two months last week as investors grew cautious about the short-term outlook for the greenback after dovish comments by US policymakers.

Against a basket of competitors, the greenback was broadly steady at 96.48 after falling almost half a percent last week, the biggest weekly decline since late September.

The dollar has been a surprise winner in 2018, after rising almost 10 percent from April lows thanks to a combination of interest rate increases and strong data. But the growing view that US economic growth may have peaked has begun to undermine this advantage.

"The Dovish Fed comments on Friday gave some encouragement to investors to take profits on the dollar position that has been increasing in recent weeks," said Jane Foley, head of FX strategy at London-based Rabobank.

Richard Clarida, newly appointed Fed vice chairman, warned about slowing global growth, saying "that's something that will be relevant" to the outlook for the US economy.

Federal Reserve Bank of Dallas President Robert Kaplan, in a separate interview with Fox Business, also said he saw slowing growth in Europe and China.

Their comments came as the long dollar position swelled to their biggest level in almost two years despite a moderate decline last week, according to data futures.

The latest US Treasury ownership data also weighed on the dollar. China and Japan, the two largest US foreign creditors, cut holdings of their US Treasuries further in September as foreign tastes for Treasuries declined.

Despite the weakness of the dollar, the euro failed to rally significantly above the level of $ 1.14 because concerns over negotiations between Brussels and Rome over Italy's budget plan weakened a broader appetite. It changed hands at $ 1.1422.

Elsewhere, sterling remains in the spotlight with a currency that is expected to remain under pressure until the market gets further clarity on the progress of the Brexit agreement.

It was 0.2 percent stronger against the dollar at $ 1.2864 after a 1 percent drop last week because the British Prime Minister Theresa May's draft of a European Union divorce deal had met with stiff opposition with several ministers resigning.

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