Dollar advances on Fed optimism; Sterling weakens after Bank of England meeting

Investing.com – The U.S. dollar hit new highs on Friday as the U.S. Federal Reserve was more optimistic than its European counterparts, while the British pound continued to decline.

At 05:00 ET (09:00 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 105.365, not far from last week’s high of 105 .80.

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The dollar supported by a relatively optimistic Fed

The U.S. currency has been in high demand even as data points to a slowing economy.

The latest figures on the housing and labor markets were weak, and the next PMI figures, due later in the session, are expected to show a slowdown in activity.

However, Fed officials continue to call for caution and more data before agreeing to cut interest rates, and the US central bank’s latest meeting saw rate cuts predicted this year reduced to one from three previously.

In contrast, the European Central Bank began cutting interest rates earlier this month, the Swiss National Bank has cut rates twice, and the Bank of England appears poised to start cutting rates in August.

“The surprise rate cut by the Swiss National Bank and the dovish stance of the Bank of England have reinforced the idea that central banks in Europe are well ahead of the Federal Reserve when it comes to rate cuts, a positive development for the dollar,” analysts at ING (AS:) said in a note.

Sterling weakens as interest rate cut looms in August

The pair was down 0.1% at 1.2652, with sterling near a five-week low following the Bank of England’s latest monetary policy meeting.

The BoE held its rates steady, but some policymakers said the decision not to cut rates was “finely balanced”, raising expectations that policymakers will agree to a cut at their next meeting early this month. august.

Sterling was supported to some extent on Friday by data showing British retail sales jumped sharply last month after heavy rain kept shoppers away in April. Sales volumes rose 2.9% in May, compared to a revised 1.8% decline in April.

The fell 0.1% to 1.0692, after falling around 0.4% in the previous session, as weak economic data added to political concerns in the region.

Eurozone business growth slowed sharply this month, with the services sector showing signs of weakening while the slowdown in the manufacturing sector deepened.

The region’s preliminary Composite Purchasing Managers’ Index, compiled by S&P Global, fell to 50.8 this month from 52.2 in May, contradicting expectations in a Reuters survey for a rise to 52. ,5.

“With signals of caution from the main European counterparts of the European Central Bank (the BoE and the SNB) and the nerves of investors still quite tense over the fiscal and political developments of the EU, the euro is logically under pressure in the second half of this week,” ING added.

THE yen falls to eight-week low

In Asia, the traded 0.1% lower at 158.81, with the pair slipping slightly after climbing earlier to a new eight-week high above 159.

The Japanese currency remained weak after the Bank of Japan decided last week not to reduce bond purchases until its July meeting.

The US Treasury on Thursday added Japan to the list of countries it is monitoring for possible designation as a currency manipulator, following the Bank of Japan’s massive intervention to prop up the yen, which hit its lowest level in 34 years.

The traded slightly higher at 7.2611, as the Chinese yuan remained under pressure amid doubts about the strength of the country’s economic recovery.

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