CURRENCIES: Dollar Bounces From Worst Week In 2 Months As Risk-on Mindset Returns

Attention remains on Hurricane Irma and UN's North Korea decision

The dollar advanced cautiously Monday against most rivals, rising from its deepest weekly drop in two months, as renewed interest in riskier assets benefited the U.S. unit.

Most major global stock indexes pushed higher Monday as investors largely exhaled after North Korea marked the 69th anniversary of its founding on Saturday without any further missile or nuclear tests, fuelling some unwinding of safe-haven bets in gold, bonds and the Japanese yen.

Financial markets have also been assessing continued storm damage in the U.S. and its implications for the economy. Hurricane Irma was downgraded to Category 1 early Monday after tearing a destructive path across South Florida on Sunday, making landfall as a Category 3 hurricane.

In response, the ICE U.S. Dollar Index, a gauge of the greenback's performance against six rivals, rose 0.1% to 91.4901. It dropped to a 2 1/2-year low of 91.0110 at one point Friday.

"The dollar index has bounced back up from its two years lows purely because the estimates of economic damage [from Hurricane Irma] are far less than anticipated," said Naeem Aslam, chief market analyst at Think Markets.

The greenback had retreated against major rivals for much of last week, and especially Friday, as natural disasters, geopolitical tensions and a continued pullback in Treasury yields cast a pall over the U.S. currency, with exchange rates for the Japanese yen, the euro and the pound at recent notable highs on their own fundamental drivers. Last week's extension of the U.S. debt ceiling and government funding deadline did help the dollar up deeper lows.

North Korea failed to conduct another missile test over the weekend, as some predicted might happen to mark the anniversary of the country's founding. Still, tensions may return with a UN Security Council vote due Monday that calls for further and tougher sanctions on the isolated nation.

If the U.S. does "rig up the illegal and unlawful 'resolution' on harsher sanctions, the DPRK shall make absolutely sure the U.S. pays due price," said North Korea's foreign ministry via a statement published by the official KCNA news agency, according to AFP (https://www.yahoo.com/news/north-korea-warns-us-greatest-pain-over-fresh-201000211.html).

Dollar-yen changed hands at Yen108.55 Monday compared to Yen107.84 late Friday in New York. The pair broke down through the Yen108 level for the first time since November 2016 on Friday and Friday's steep decline set the pair up for a 2.3% loss on the week, the biggest since November as investors flocked to the perceived safety of yen.

There are no key U.S. economic data releases on the docket for Monday. The U.S. 10-year Treasury note rose to a yield of 2.10%, which helped to lift the dollar.

"U.S. inflation data will be the talk of the week when it comes to dollar index from here onwards and a number better than expectations could satisfy the bulls," Aslam said.

Net short bets against the dollar remain near their highest levels since January 2013 as expectations of Federal Reserve policy tightening have faded. Currency markets now expect only one U.S. rate increase by the end of 2018, and even those odds have dropped since just a few weeks ago.

The dollar clawed back somewhat against the euro , with one euro priced at $1.2012 compared to $1.2037 late Friday in New York. The euro last week was visiting levels not seen since January 2015, following Thursday's European Central Bank meeting. The shared currency registered a 1.5% gain for the week.

Read:Here's why the rising euro is defying Mario Draghi and the ECB (http://www.marketwatch.com/story/heres-why-the-rising-euro-is-defying-mario-draghi-and-the-ecb-2017-09-07)

ECB board member Benoit Coeure said Monday that improved euro zone growth could offset some of the negative effects of the euro's strength, but added that a nagging exchange-rate shock could hold back inflation. The euro had rallied after the ECB's Mario Draghi said last week that policy makers will reassess the bank's quantitative-easing program at its Oct. 26 meeting. There are widely held expectations for the bank to begin to wind down its EUR60-billion-a-month bond-buying program in 2018.

In other moves, the pound changed hands at $1.3218 compared to $1.3197 late Friday in New York. Over the course of last week, the pound appreciated 2% against the dollar, in its biggest move since late June.

(END) Dow Jones Newswires

September 11, 2017 07:32 ET (11:32 GMT)