U.S. dollar falls for 2nd day, but outlook remains positive

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© Reuters. FILE PHOTO: U.S. dollar bills are seen on a light table at the Bureau of Engraving and Printing in Washington, November 14, 2014. REUTERS/Gary Cameron/File Photo/File Photo

By Gertrude Chavez-Dreyfuss and Ritvik Carvalho

NEW YORK/LONDON (Reuters) – The dollar fell for a second straight session on Friday, tracking declines in U.S. Treasury yields, as investors pared back their positions after recent sharp gains, though the decline was viewed as temporary.

U.S. 10-year Treasury yields were last at 1.484%, down four basis points.

For the week, the dollar index was on track for its largest percentage gain since late August, as investors looked to the Federal Reserve’s reduction of asset purchases in November and a possible rate hike late next year.

“The Fed in no uncertain terms has turned hawkish at the September meeting. They have also raised the inflation forecast, which is actually above consensus expectations, which tells you that they are probably more nervous about inflation than they let on,” said Mazen Issa, senior FX strategist, at TD Securities in New York.

“We expect Treasury yields to rise further and within that we expect real yields to do the heavy lifting and that’s notable for the dollar. It will certainly be a U.S.-led real rates back-up, which should be dollar-positive.”

Cautious market sentiment due to COVID-19 concerns, wobbles in China’s growth and a Washington gridlock ahead of a looming deadline to lift the U.S. government’s borrowing limit has lent support to the dollar, seen as a safe-haven asset.

In mid-morning trading, the dollar index slipped 0.3% to 94.047, having gained 0.8% this week, the largest weekly rise since late August.

Friday’s batch of U.S. data was mixed, adding to weakness in the dollar ahead of the weekend.

U.S. consumer spending increased more than expected in August, posting a 0.8% rise, but consumption was weaker than initially thought in July, dipping 0.1% instead of gaining 0.3%.

Inflation remained elevated, but not by much. Core inflation as measured by the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, was up 0.3% in August, unchanged from previous month.

In manufacturing, data was more upbeat. The Institute for Supply Management (ISM) said its index of national factory activity increased to a reading of 61.1 last month from 59.9 in August.

In other currencies, the euro was flat at $1.1587, falling about 1.1% for the week, on pace for its biggest percentage fall since June.

The yen bounced back against the dollar from a 19-month low overnight, with the greenback last down 0.3% at 110.98 yen.

Commodity currencies rallied against the dollar on Friday.

The Australian dollar gained 0.5% to US$0.7266 and slumped 3.6% in the third quarter – the worst performance of any G10 currency against the dollar – as prices for Australia’s top export, iron ore, fell sharply.

Sterling was also an underperformer last quarter, dropping 2.5%, and looks set to log its worst week in more than a month, amid growing supply chain problems. [GBP/] Sterling was last up 0.6% at $1.3560, just above a 9-month low at $1.3516.

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Currency bid prices at 11:14AM (1514 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 94.0670 94.3120 -0.24% 4.541% +94.3950 +93.9850

Euro/Dollar $1.1595 $1.1578 +0.15% -5.09% +$1.1607 +$1.1564

Dollar/Yen 111.0800 111.2800 -0.18% +7.51% +111.4850 +110.9050

Euro/Yen 128.76 128.82 -0.05% +1.45% +129.0400 +128.5600

Dollar/Swiss 0.9302 0.9317 -0.16% +5.14% +0.9337 +0.9283

Sterling/Dollar $1.3549 $1.3477 +0.54% -0.83% +$1.3570 +$1.3434

Dollar/Canadian 1.2665 1.2685 -0.11% -0.49% +1.2738 +1.2645

Aussie/Dollar $0.7260 $0.7227 +0.46% -5.62% +$0.7274 +$0.7193

Euro/Swiss 1.0784 1.0784 +0.00% -0.21% +1.0808 +1.0773

Euro/Sterling 0.8557 0.8593 -0.42% -4.25% +0.8623 +0.8547

NZ $0.6933 $0.6897 +0.48% -3.50% +$0.6944 +$0.6879

Dollar/Dollar

Dollar/Norway 8.6285 8.7400 -1.24% +0.52% +8.7820 +8.6285

Euro/Norway 10.0062 10.1205 -1.13% -4.40% +10.1728 +10.0077

Dollar/Sweden 8.7635 8.7585 +0.14% +6.92% +8.7878 +8.7392

Euro/Sweden 10.1603 10.1460 +0.14% +0.85% +10.1755 +10.1403

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Currency bid prices at 11:14AM (1514 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 94.0670 94.3120 -0.24% 4.541% +94.3950 +93.9850

Euro/Dollar $1.1595 $1.1578 +0.15% -5.09% +$1.1607 +$1.1564

Dollar/Yen 111.0800 111.2800 -0.18% +7.51% +111.4850 +110.9050

Euro/Yen 128.76 128.82 -0.05% +1.45% +129.0400 +128.5600

Dollar/Swiss 0.9302 0.9317 -0.16% +5.14% +0.9337 +0.9283

Sterling/Dollar $1.3549 $1.3477 +0.54% -0.83% +$1.3570 +$1.3434

Dollar/Canadian 1.2665 1.2685 -0.11% -0.49% +1.2738 +1.2645

Aussie/Dollar $0.7260 $0.7227 +0.46% -5.62% +$0.7274 +$0.7193

Euro/Swiss 1.0784 1.0784 +0.00% -0.21% +1.0808 +1.0773

Euro/Sterling 0.8557 0.8593 -0.42% -4.25% +0.8623 +0.8547

NZ $0.6933 $0.6897 +0.48% -3.50% +$0.6944 +$0.6879

Dollar/Dollar

Dollar/Norway 8.6285 8.7400 -1.24% +0.52% +8.7820 +8.6285

Euro/Norway 10.0062 10.1205 -1.13% -4.40% +10.1728 +10.0077

Dollar/Sweden 8.7635 8.7585 +0.14% +6.92% +8.7878 +8.7392

Euro/Sweden 10.1603 10.1460 +0.14% +0.85% +10.1755 +10.1403

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