CURRENCIES: Dollar Selloff Pauses, Rebounds From 3-year Low

By FeaturesDow Jones Newswires

Pound falls after core inflation falls more than forecast

The dollar broke a four-session losing run on Tuesday, rebounding as U.S. traders returned from the Martin Luther King holiday.

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The pound skipped lower after U.K. consumer price data showed core inflation fell more than expected in December, easing pressure on the Bank of England to raise interest rates again.

What are currencies doing?

The ICE U.S. Dollar Index , a measure of the buck against a basket of six rival currencies, rose 0.3% to 90.775, rebounding from a three-year low hit on Monday.

The euro slid to $1.2220 from $1.2264 late Monday in New York.

The pound dropped to $1.3752 compared with $1.3794 on Monday.

The Japanese yen also fell against the greenback, with the dollar buying Yen110.67, up from Yen110.53 on Monday.

What is driving the market?

The dollar strength came after a string of losses for the greenback, with analysts ascribing Tuesday's gains to nothing more than a pause in the selloff. The buck has in recent days traded around the lowest euro level since December 2014 as traders shift their attention from the Federal Reserve to the European Central Bank.

The shared currency got a small boost late on Monday when Ardo Hansson, a member of the ECB's Governing Council, said the central bank could call a complete halt to its bond buying after September, according to media reports. Speaking in an interview with German newspaper Boersen-Zeitung, Hansson said if economic growth and inflation remain in line with projections, it would be "conceivable and also appropriate" to end the program.

Tighter monetary policy is usually supportive for a country's currency as it attracts investments and signals confidence in the region's economy.

The pound extended losses after U.K. December inflation came out. The headline reading came in at 3%, down from 3.1% as expected, while core inflation fell to 2.5% from 2.7%. Economists had expected a core reading of 2.6%.

The Bank of England in November raised rates for the first time in a decade in an effort to reign in inflation that at around 3% was way above the central bank's 2% target. With inflation falling back in December, analysts said the immediate pressure on the BOE to hike again has eased a bit.

What are strategists saying?

"After extending its recent slide yesterday while the U.S. markets were on holiday, the dollar is firmer against all the major currencies and most of the emerging market currencies," said currency strategists at BBH in a note to clients.

"There does not seem to be any macroeconomic developments behind the dollar's stabilization, and the gains are quite minor, suggesting a pause in the downtrend rather than a reversal at this juncture. That said the extent and duration of what appears to be little more than a technical adjustment is the key to the near-term outlook," he added.

(END) Dow Jones Newswires

January 16, 2018 07:24 ET (12:24 GMT)

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