CURRENCIES: Dollar Bounces Around As Geopolitical Tensions Escalate

By Anora Mahmudova, MarketWatch , Rachel Koning Beals Features Dow Jones Newswires

Sterling drops after lackluster U.K. service-sector data

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The U.S. dollar showed a mixed performance on Wednesday as investors looked to Federal Reserve meeting minutes and jobs data due later in the week for fresh clues on the likelihood of another U.S. interest-rate hike this year.

The dollar gained against the euro and emerging market currencies, but weakened against the Japanese yen as geopolitical tensions escalated ahead of the Group of 20 summit (http://www.marketwatch.com/story/white-house-says-trump-putin-to-meet-at-g-20-summit-on-friday-2017-07-04) in Germany later this week. On Tuesday, North Korea successfully launched its first ballistic missile capable of reaching the parts of the U.S (http://www.marketwatch.com/story/north-korea-claims-successful-test-firing-of-an-icbm-2017-07-04).

The ICE Dollar Index , which measures the greenback against a basket of six rival currencies, pared earlier gains to trade 0.1% higher at 96.37.

Against the yen , the dollar first strengthened to two-month highs, but pared gains to trade at Yen113.34, compared with Yen113.28 late Tuesday. The pair traded as high as Yen113.69 earlier.

The euro was lately fetching $1.1331, compared with $1.1347 late Tuesday. The shared currency had traded up to $1.1370.

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The dollar index last week closed out 2017's second quarter with its worst quarterly loss since September 2010, pressured by hawkish comments from the heads of the European Central Bank and the Bank of England, which boost their respective currencies relative to the dollar, and lingering concerns over President Donald Trump's pro-growth agenda.

See:Dollar bulls have a lot to worry about in second half of 2017 (http://www.marketwatch.com/story/dollar-bulls-have-a-lot-to-worry-about-in-second-half-of-2017-2017-06-29)

In economic news, factory orders for May fell by 0.8%, slightly more than a 0.7% drop forecast by Wall Street, according to economists polled by MarketWatch.

But the bigger news likely comes with the 2 p.m. Eastern release of minutes from the Fed's June 13-14 meeting.

"Market participants will dig into the minutes for more details on the timing of the balance sheet normalization, as well as any discussion with regards to the timing of the next rate increase," said Charalambos Pissouros, senior analyst, with Iron FX. "At the time of writing, the market is anticipating the next hike to come in March 2018. This shows that the dot plot has not convinced the financial community, which may need stronger hints before it prices in another hike for 2017."

"With what we know until now, our own view is that the Fed is indeed likely to proceed with another hike this year," he added.

In other trading, the pound eased Wednesday to $1.2910 vs. $1.2920 late Tuesday as a reading of Britain's services sector was only the latest of a series of weaker data that could deter the Bank of England from raising record-low interest rates for the first time in 10 years.

Growth across British services companies fell to a four-month low in June and companies were their least optimistic in nearly a year, according to Wednesday's Markit/CIPS UK Services Purchasing Managers' Index (PMI). The index edged down to a four-month low of 53.4 in June from 53.8 in May.

With an eye toward rising inflation, Bank of England Gov. Mark Carney is among the officials who has spoken in favor of reversing last year's interest-rate cut, which followed the shock Brexit vote.

The largely hawkish remarks nudged the pound to reverse its 2% drop against the dollar. But spotty economic readings of late surely complicate the BOE's job especially as officials negotiate the U.K. exit from the European Union.

Emerging market currencies were largely weaker on Wednesday as commodity prices dropped. Currencies of oil producers also suffered as crude-oil prices dropped more than 2%.

Canadian dollar weakened with the dollar buying C$1.2983, up from C$1.2937 late Tuesday.

Russian ruble dropped about 1% against the dollar, with the greenback buying 60.0295 rubles, compared with 59.4513 late Tuesday.

Turkish lira also weakened sharply against the dollar, trading at 3.5987, vs. 3.5594 late Tuesday.

(END) Dow Jones Newswires

July 05, 2017 10:20 ET (14:20 GMT)