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CURRENCIES : Dollar Breaks 5-day Losing Run, But Analysts Remain Downbeat

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01/03/2018 | 01:09pm CEST

By Sara Sjolin, MarketWatch

ING stays bearish on the buck

The dollar halted its recent selloff on Wednesday, with a key dollar index breaking a five-session losing streak as traders waited for the latest update from the Federal Reserve.

What are currencies doing?

The ICE U.S. Dollar Index rose 0.2% to 92.094, rebounding from a more-than three-month low reached on Tuesday .

The euro fell to $1.2014 from $1.2061 late Tuesday in New York, when the shared currency traded around its highest dollar level since January 2015.

The pound dropped to $1.3562 from $1.3589 on Tuesday, yanked lower by a disappointing reading on the U.K. construction sector.

The yen was largely flat against the dollar, with the greenback buying Yen112.26 compared with Yen112.29 on Tuesday.

What is driving the markets?

Analysts said the dollar strength on Wednesday was more a pause from the selloff than a turnaround for the U.S. currency.

ING pointed to a range of factors to be bearish on the dollar, including uncertainty over how the Republican tax bill will impact the economy, an unsettled political backdrop ahead of the November midterms and "better goldilocks investment opportunities outside of the U.S."

"The latter two factors in particular is seeing the USD lose its role as an investment currency -- and trading under new rules where an environment of rising U.S. rates no longer guarantees dollar strength," said Viraj Patel, foreign exchange strategist at ING, in a Wednesday note.

Traders were also looking ahead to the release of the minutes from the Dec. 12-13 Federal Open Market Committee meeting due at 2 p.m. Eastern Time. Investors are looking for hints on how many times the central bank will hike interest rates in 2018. According to the CME Group's data, the market is currently pricing in the next rate rise in March.

What are strategists saying?

"AUD/JPY is a good gauge of market sentiment and is threatening a correction. Could this be a harbinger for a near term shift in sentiment again? It is too early to say for sure, but as the U.S. dollar sees a mild rebound this morning these moves have tended to be seen as another opportunity to trade the trend recently," said Richard Perry, market analyst at Hantec Markets, in a note.

The Australian dollar-yen pair traded at 87.936 on Wednesday, close to its highest level since early November.

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