NEW YORK/LONDON- The dollar was on track to post its biggest quarterly gain in a year on Friday and gains for the 11th consecutive week as investors priced in the likelihood of a still solid economy and higher rates for longer.
The greenback retraced most earlier losses against a basket of currencies to be only slightly lower on the day, following data that showed that US consumer spending increased in August, but underlying inflation moderated, with the year-on-year rise in prices excluding food and energy slowing to less than 4.0 percent .
“Prices are higher on a monthly basis, but overall, inflation is moving lower. It’s good news for the market because the Fed is looking at the core rate,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
The dollar has gained on expectations that the US economy will remain more resilient to higher interest rates and oil prices than other economies, after the Federal Reserve last week warned it may hike rates further and is likely to hold them higher for longer.
The dollar index which tracks the US currency against six others, fell 0.05 percent to 106.09 on Friday and is track to end the quarter up 3.13 percent and post an 11th straight weekly rally – its longest such run in nine years. It is down from a 10-month high of 106.84 on Wednesday.
Despite weaker levels on Thursday and Friday some analysts see the greenback as likely to continue to outperform.
“We view this dollar weakness as corrective in nature and is most likely driven by quarter-end rebalancing,” Win Thin, global head of currency strategy at Brown Brothers Harriman in New York, said in a note. “We’re not sure how long this correction lasts but investors should be looking for an opportunity to go long dollars again at cheaper levels.”
Meanwhile, a partial government shutdown is looming, which could affect the release of economic data and potentially dent economic growth.
Hardline Republicans in the US House of Representatives on Friday rejected a bill proposed by their leader to temporarily fund the government, making it all but certain that federal agencies will partially shut down beginning Sunday. – Reuters
