Dollar recovers from two-week lows in thin market trading

The dollar recovered from a two-week low against a basket of six major currencies on Monday, though trade was thin with many markets closed for the new year holiday.

The currency had soared to 14-year highs in December, boosted by market expectations that the US Federal Reserve will hike rates as many as three times this year, and that president-elect Donald Trump will stoke growth and inflation with a programme of fiscal expansion.

The dollar finished the year with an almost 4 per cent annual rise, the fourth consecutive year of gains.

But the index that measures the currency against six major rivals lost more than 1 per cent during the last three days of last week, its weakness exacerbated on Friday during a flash surge for the euro in low volumes of trading in Asia.

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‘Flash crash’

The euro jumped two full cents to as high as $1.07, before quickly retreating, prompting analysts to draw parallels with a “flash crash” in October that briefly knocked almost 10 per cent off the value of Britain’s pound.

On Monday, the euro fell 0.4 per cent to $1.0513 despite strong manufacturing data for the currency bloc, while the dollar index climbed half a per cent to 102.68, close to the 14-year peak of 103.65 it touched on December 30th.

“In the last days of 2016 we saw the dollar retreat somewhat, and there might be some sense of a correction from Europe this morning. I don’t see any fundamental drivers for the moves,” said Commerzbank currency strategist Esther Reichelt in Frankfurt.

Data released on Friday showed speculators once again taking a bullish stance on the dollar, increasing their bets in the week up to last Tuesday after cutting their long positions for the first time since October in the previous week.– (Reuters)