US Dollar ends week higher in low-volume trading session

New York (Nov 27)  The US dollar rose against most of its major rivals Friday, pushing the euro below $1.06 in a low-volume trading session.

An overnight rout in Chinese equities, during which the Shanghai Composite Index SHCOMP, -5.48% recorded its biggest one-day drop since Aug. 25, pushed the yen lower. The dollar USDJPY, +0.23%  traded at ¥122.82 in Friday afternoon New York trade, compared with ¥122.65 late Thursday in New York.

Chinese stock regulators launched investigations into two major Chinese brokerages over suspected violations of securities rules, which rekindled fears over the stability of the Chinese financial sector.

“The impact on FX was mainly on the yen,” said Simon Smith, chief economist at FxPro in a note Friday. “Still, with the U.S. Thanksgiving holiday yesterday also likely to keep volumes on the light side today, the overall ranges have been comparatively narrow.”

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A flight to the safety of the dollar earlier this week following the Turkish military’s downing of a Russian fighter has largely subsided, traders said. Attention is now turning to the theme of so-called monetary policy divergence — the notion that the Federal Reserve is on track to tighten monetary conditions while the rest of the world continues to ease.

Traders are focusing on the European Central Bank’s policy meeting on Dec. 3, and the magnitude of potential easing steps for the eurozone, as well as on the U.S. jobs report due Dec. 4 that could determine whether the Fed hikes rates in December.

The euro EURUSD, -0.1696% traded at $1.0598 Friday afternoon in New York, compared with $1.0621 on Thursday. The U.S. Dollar Index DXY, +0.19% a measure of the dollar’s strength against a basket of six rival currencies, was up 0.2% at 100.03.

Investors have largely factored in a possible Fed decision to raise short-term rates in December, but are skeptical about further monetary tightening in the months ahead, traders said.

The yield on the U.S. two-year government debt TMUBMUSD02Y, -1.65%  shows markets are well-prepared for a possible interest rate increase, while International Monetary Market speculators continue to place bullish bets on the U.S. dollar, said FPG Securities Chief Executive Koji Fukaya.

“The bets on the dollar are at record levels, and it’s hard to imagine [the aggregate U.S. dollar position] rising even further” to meaningfully cross the ¥123-to-the-dollar threshold before year-end, he said.

The euro EURJPY, +0.04%  was at ¥130.16 Friday afternoon, compared with ¥130.35 late Thursday night.

The limited range of movement in the tU.S. dollar, the euro and the yen was in contrast to the Turkish lira’s USDTRY, +0.1506% slide this week. The lira has been on decline against the dollar since last Friday, when Turkey warned Russia that attacks on Syrian Turkmen villages could lead to “serious consequences.”

After Russia announced plans to impose sanctions on Turkish economic interests, the lira was down 3.6%, compared with the week earlier’s 2.9243 lira to the dollar.

Source: MarketWatch