Dollar dips after best week in five months

By Jemima Kelly

LONDON (Reuters) - The dollar edged down from a 2-1/2-month high versus a basket of major currencies on Monday after recording its best week since mid-May, although an increase in risk appetite limited the greenback's losses.

Global stock markets rallied after China on Friday cut rates for the fifth time this year, just a day after the European Central Bank signaled that it was ready to increase the scale of its stimulus measures.

The benchmark 10-year U.S. Treasury note yield rose nearly 6 basis points on Friday to a 2-week high as demand for safe havens waned, providing broad support for the dollar, whose index <.DXY> hit 97.201, the strongest since Aug. 12.

But the index edged down 0.2 percent on Monday to 96.762, while the greenback fell 0.4 percent against the yen to 120.98 yen .

Josh O'Byrne, a currency strategist at Citi in London, said the dollar's weakness would be temporary. "This is a moderation of the moves that we saw last week more than anything," he said.

The euro gained 0.1 percent to $1.10185 , inching away from a 2-1/2-month low of $1.0989 hit at the start of the Asian trading session. A slightly better-than-expected monthly German business confidence survey had little effect on the currency.

"Our bias would certainly be for further downside in the euro and further upside in dollar/yen," said BNP Paribas currency strategist Sam Lynton-Brown in London.

China's easing late on Friday was the latest reminder of the monetary policy divergence emerging between the U.S. Federal Reserve, which is expected to raise interest rates in the coming months, and other central banks.

The U.S. Federal Reserve makes its latest policy decision on Wednesday, and is expected to keep rates on hold for now. But after last week's dovish surprises, Sweden's Riksbank, the Reserve Bank of New Zealand and the Bank of Japan, which all hold policy meetings this week, will be closely watched.

"Globally, the focus right now is on central banks and monetary policy as a whole. Dollar/yen for example was driven higher by a general improvement in risk appetite, not on hopes of easing by the Bank of Japan alone," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

The Australian and New Zealand dollars were the biggest beneficiaries from the renewed appetite for risk, each gaining half a percent on the day against their U.S. counterpart.

(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Toby Chopra)

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Arrested Canadian NATO intern suspected of spying for China, sources say
• BP to cut 700 jobs as it simplifies company, internal email shows
• Goldman Sachs asset arm forms an AI investing platform, memo shows