The dollar closed higher against the yen and British pound this week, but ended its winning streak versus the euro by closing in the red for the first time in four weeks. The persistent selling pressure against the European joint currency was finally extinguished thanks to remarks from European Central Bank President Mario Draghi downplaying the need for negative rates, and a late sell-off in the dollar on the news of a renewed FBI investigation into Democratic presidential candidate Hillary Clinton.
EUR/USD lingered at the June 24 low of 1.0900/1.0902 for the last half of the week, but snapped higher when news of the FBI probe circulated global financial markets. Although the move was much more exaggerated in USD/MXN and USD/JPY, the euro finally broke out of this week’s range to challenge 1.100 just before the North American close, giving the euro a gain of nearly 1.0%.
USD/JPY was sidelined by technical resistance at 104.40/104.60 which corresponds to the 62% retracement of the 7/21 high of 107.58 and 8/16 low of 99.42, but finally broke through for a high of 105.34 on better-than-expected data on the U.S. services sector. The services PMI jumped to 54.8 in October from 52.3 the month prior, fueling a run higher in the dollar. But by Friday, all the previous days’ gains were compromised and the dollar retreated back to 104.46 in the fallout from the Clinton investigation. USD/JPY still ended the week with a 1.5% gain at 104.76.
This week’s economic data did little to alter expectations for the Federal Reserve to hike rates in December. The purchasing managers manufacturing index exceeded expectations while consumer confidence waned into the final stretch of the presidential campaign. Home sales were up, but durable goods orders were mixed, heavily influenced again by the transportation sector. On Friday, a better-than-expected U.S. growth rate of 2.9% was mitigated by another dour consumer sentiment indicator.
By Stephen Holmes