CURRENCIES: Dollar Inches Higher As Yellen Testifies On Capitol Hill A Second Day
New Zealand, Australian dollar jumps after strong China import data
The U.S. dollar traded marginally higher against the euro and the yen, but was weaker against the British pound on Thursday, as Federal Reserve Chairwoman Janet Yellen testified on Capitol Hill a second day.
The ICE Dollar Index, which measures the greenback against six major rivals, was up less than 0.1% at 95.81. The dollar has been steadily declining since the start of the year, having fallen more than 6% year to date.
On Thursday euro was trading at $1.1400 compared with $1.1413 late Wednesday in New York. The shared currency is up more than 8% against the dollar year to date.
"The dollar is in a consolidation mode, but we expect it to continue to fall in the near term, mostly driven by negative real rates. When inflation is above Fed funds rates, investors are not willing to hold dollar-denominated assets, pushing the currency lower," said Neil Mellor, chief currency strategist at BNY Mellon.
The Fed raised Fed-funds rates by a quarter of a percentage point to range between 1%-1.25% at its June meeting. The personal consumption expenditure, or PCE index, the Federal Reserve's preferred inflation gauge, fell in May, with the 12-month rate of inflation tapering off to 1.4%. Fed-funds futures are pricing in less than 50% chance for a rate hike by December.
The dollar strengthened against the Japanese yen , trading at Yen113.36, up from Yen113.15 late Wednesday in New York.
Read:Why relying on yen weakness for carry trade is risky (http://www.marketwatch.com/story/why-relying-on-yen-weakness-for-carry-trade-is-risky-2017-07-10)
The Canadian dollar was unchanged on Thursday, after a big jump a day before when the Bank of Canada raised its overnight interest rates to 0.75% (http://www.marketwatch.com/story/bank-of-canada-makes-first-rate-hike-in-7-years-2017-07-12), lifting rates for the first time in nearly seven years.
On Thursday, dollar bought C$1.2748 on Thursday.
The loonie has rallied over the past two months as BOC officials pivoted from dovish to a hawkish stance. The rally was amplified by a large short position that had built up, market participants said.
"It was and still is a case of a short squeeze. The loonie at this point is not supported by fundamentals and is overvalued. Our momentum indicators are showing that the currency is overbought and there will be some form of consolidation at some point," said Mellor.
In other currency pairs, the Australian dollar and the New Zealand dollar jumped against the greenback after strong Chinese import data. China reported a 17.2% year-over-year increase in imports, which came in above consensus estimates.
The Aussie dollar was up 0.5% at $0.7716, up from $0.7679 late Wednesday in New York. The New Zealand dollar bought $0.7310, up 0.7% from $0.7261 late Wednesday.
The British pound was also stronger against the dollar, buying $1.2914, compared with $1.2880 late Wednesday. Some analysts said sterling gains seem to be mostly a function of the cross-rate adjustment.
(END) Dow Jones Newswires
July 13, 2017 11:04 ET (15:04 GMT)