NEW YORK- The dollar edged down against a basket of currencies, pulled down by portfolio rebalancing, but was on track to end the week higher as fresh data reinforced the view the US economy remains on a firm footing.
US consumer spending increased more than expected in September, signaling a strong fourth quarter, while monthly inflation was elevated, data on Friday showed.
The dollar index which measures the currency’s strength against a basket of six rivals, was 0.07 percent lower at 106.5 , with analysts attributing some weakness to currency trading to rebalance portfolios. The index was up 0.4 percent for the week.
“This time of the month there are month-end flows that tend to predominate at certain points,” Bipan Rai, North America head of FX strategy at CIBC Capital Markets, said. “I would expect some of that is reflected in the price action that we are seeing for the dollar today.”
Following big gains for the July-September period the dollar has struggled to make further advances despite relatively upbeat US economic data, Rai noted.
“We have seen some signals, at least in the near term, that the dollar is a bit overbought,” said Rai, who still expects the dollar to remain strong.
Forex moves were muted ahead of the Federal Reserve and Bank of Japan policy meetings next week.
“Additional positioning doesn’t really make sense until those two key risk events are out of the way,” Rai said.
Cooling inflation will likely keep the Fed on pause in coming months, traders bet on Friday, even as persistent underlying price pressures amid strong consumer spending kept some chance of a rate hike later this year in play.
The US economy grew at its fastest pace in nearly two years in the third quarter, data on Thursday showed, as higher wages from a tight labor market helped power consumer spending.