NEW YORK- The dollar dipped on Friday but was on track for its strongest weekly performance in a month on expectations that the US economy will continue to outperform its peers globally this year and that US interest rates will stay relatively higher.
A still solid labor market and stubbornly high inflation have lifted Treasury yields in recent weeks and boosted demand for the US currency.
New policies under the incoming Donald Trump administration, including business deregulation, tax cuts, curbs on illegal immigration and tariffs, are also expected to boost growth and add to price pressures.
The dollar index was last down 0.28 percent on the day at 108.91, after hitting a two-year high of 109.54 on Thursday. It is on track for a weekly gain of 0.85 percent.
Despite recent dollar gains there remains considerable uncertainty over when policies will be introduced by the new US government, and what their ultimate impact will be. That could pause the dollar rally in the near-term.
“We’re likely to see a bit of a dollar pullback as the administration comes in because all these proposed tariffs – they’re going to take some time to implement and we don’t actually know if all of these proposals are going to be implemented or not,” said Helen Given, FX trader at Monex USA in Washington.
“As we move through the second half of this calendar year I think we’re going to see some more dollar strength,” Given said.
The dollar briefly pared losses after data on Friday showed that US manufacturing moved closer to recovery in December, with production rebounding and new orders rising further.
The euro faces a weaker growth outlook and may be hurt by US tariffs, with the European Central Bank expected to cut rates further than the Federal Reserve this year.
