By Karen Brettell
NEW YORK (Reuters) – The dollar fell on Friday but was on track for its strongest weekly performance in a month on expectations that the U.S. economy will continue to outperform its global peers. -year and that US interest rates will remain relatively higher.
A still strong labor market and relatively high inflation have raised Treasury yields in recent weeks and increased demand for US currency.
New policies under the incoming Donald Trump administration, including business deregulation, tax cuts, curbs on illegal immigration and tariffs, are also expected to boost growth and add to price pressures.
It was last down 0.28% on the day at 108.91, after hitting a two-year high of 109.54 on Thursday. It is on track for a weekly gain of 0.85%.
Despite recent dollar gains there is still a lot of uncertainty about when policies will be introduced by the new US government, and what their ultimate impact will be. That could stop the dollar's rally in the short term.
“It's likely we'll see a few dollars back as the administration comes in because all of these taxes are proposed – they'll take some time to implement and we don't know for sure if the proposals will that's all to be. implemented or not,” said Helen Given, an FX trader at Monex USA in Washington.
“As we move through the second half of this calendar year I think we will see more dollar strength,” said Given.
The dollar pared losses shortly after data on Friday showed US manufacturing moved closer to a recovery in December, with production rebounding and new orders rising further.
The euro is expected to grow weaker and could be hurt by US tariffs, with the European Central Bank expected to cut rates higher than the Federal Reserve this year.
Traders are pricing in 100 basis points rate cuts by the ECB before the end of the year, and only a less than certain chance of 50 basis points of cuts by the Fed.
Uncertainties including the French budget battle and German elections are also weighing on the single currency.
The euro was last up 0.39% at $1.0305 but was headed for a weekly decline of 1.22%, the worst since early November.
Sterling gained 0.41% to $1.2431. It was expected to lose about 1.15% for the week, the most since early November.
The dollar slipped 0.26% to 157.11 Japanese yen, holding just below a five-month high of 158.09, reached in December.
The Japanese currency has suffered from the wide gap between US and Japanese interest rates, with the Bank of Japan's warning of further rate hikes spelling more pain for the yen.
China hit its weakest level in more than a year at 7.3199 per dollar, as falling output and expectations of more domestic rate cuts continued to weigh on the currency.
In cryptocurrency bitcoin gained 1.59% to $98,658.
