Dollar under pressure despite outlook for US rate hikes

London — The dollar fell on Friday, set for its biggest weekly decline since March, as markets braced for a speech by Federal Reserve chairperson Jerome Powell for hints on the direction of monetary policy.

A gauge of global stocks barely budged. The MSCI all-country world index, which tracks shares in 47 countries, barely managed to keep in the black, as markets in Europe opened mixed.

Most major bourses in Europe registered gains of 0.1% apiece, although the exception was Britain’s FTSE100 index, which fell 0.1%.

The dollar index against a basket of six major currencies stood at 95.516, down 0.2% on the day.

The US currency took a hit this week after US President Donald Trump said he was “not thrilled” with the Fed under Powell, his own appointee, for raising interest rates.

Analysts said growing US political uncertainty, reinforced by the criminal convictions of two of Trump’s former advisers this week, was keeping the dollar under pressure, despite the US embarking on greater monetary tightening than elsewhere.

“In the current state of the US political system, dominated by doubts over the system of checks and balances, remnants of dollar negativity remain,” Commerzbank analyst Ulrich Leuchtmann said.

Powell is due to give a speech later in the day at the Jackson Hole conference of central bankers. Where he stands on the pace of interest rate hikes will be scrutinised after minutes from the Fed’s most recent policy meeting indicated the central bank would tighten monetary policy soon.

The Fed should raise rates further this year and probably next year as well, despite Trump’s opposition to tighter policy, Kansas City Fed president Esther George said in interviews aired on Thursday.

Dallas Fed president Robert Kaplan also said Trump’s comments would not affect the central bank’s decision-making.

The greenback was 0.1% higher against the yen, at ¥111.405. It was 0.2% lower to the euro at $1.15605.

Elsewhere in currencies, the Australian dollar was the biggest mover, gaining 0.5% on the day after the ruling Liberal party voted in a new leader.

No trade progress

Earlier in Asia, stocks fell after US-China trade talks ended without any progress. MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.25%. It was still up about 1% on the week.

Hong Kong’s Hang Seng fell 0.55% and the Shanghai composite index gained 0.2%. Australian stocks rose 0.15% and South Korea’s Kospi advanced 0.5%. Japan’s Nikkei climbed 0.85%, lifted by a weaker yen.

On Wall Street, the S&P 500 index shed 0.17% overnight to pull back slightly from a record high scaled midweek, with industrial shares sagging after the US and China imposed a fresh round of trade tariffs on each other.

Shares of industrial giants Caterpillar and Boeing, bellwethers of trade confidence, were among the biggest drags on the Dow Jones industrial average, which lost about 0.3%. Caterpillar shares fell 2%, and Boeing shares fell 0.7%.

“Global risk sentiment remains somewhat jittery ahead of Fed chair Powell’s speech, with US-Sino trade talks failing to yield any immediate progress,” strategists at OCBC Bank wrote.

Oil price rose. Brent crude futures rose 1% to $75.42 a barrel, while US crude added 0.9% to $68.46 a barrel.

Reuters