Dollar Edges Higher, but Trend Still Points Lower

The dollar edged higher Friday, rebounded to a degree after recent sharp selling, but this safe haven remains largely friendless as risk appetite grows. At 3:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 89.820, just above the 2-1/2-year low hit on Thursday.

The index is down 1.2% for the week so far, on course for its worst week in a month, and has fallen 6.5% this year to date.

USD/JPY rose 0.2% to 103.35, after falling as far as 102.88 Thursday, with the Bank of Japan keeping its key interest rates and asset purchases unchanged, and extending its special support programs for pandemic-hit businesses by six months.

EUR/USD fell 0.1% to 1.2253, suffering minor profit-taking, after reaching 1.2272 earlier Friday, levels not seen since March 2018. The risk-sensitive AUD/USD was down 0.2% at 0.7608, yet is on course for its seventh consecutive weekly gain.

“With Fed policy still to translate into negative real rates and the odds of U.S. fiscal stimulus rising, there is more downside to USD,” said ING analysts, in a research note. U.S. congressional negotiators still haven’t come to an agreement over a new coronavirus-relief bill, but the pressure is growing as the whole government could be shut down unless a spending bill, to which a pandemic relief measure can be attached, is passed before Friday ends. Senate Majority Leader Mitch McConnell said on Thursday a bipartisan deal “appears to be close at hand.”

Earlier this week, the Federal Reserve vowed to keep its monetary funding ongoing until the U.S. economic recovery is secure. The weekly initial jobless claims rose to 885,000 on Thursday, reflecting the escalating economic toll from the Covid-19 pandemic. This suggests the central bank will have to keep its policies extremely accommodative for quite some time to come.

Elsewhere, GBP/USD fell 0.5% to 1.3515, coming off a 31-month high overnight, as Britain and the European Union struck a downbeat tone about the likelihood of an agreement.

U.K. retail sales dropped by 3.8% on the month in November, their biggest decline since the first lockdown in April. The Bank of Russia is likely to keep interest rates at 4.25% for the third consecutive policy meeting later Friday as inflation continued to increase above target.

Annual inflation will reach 4.5% by year-end and is unlikely to exceed 5% at the peak in February, according to Governor Elvira Nabiullina, above the central bank’s target of 4%.

USD/RUB rose 0.7% to 73.356, with this pair up over 18% so far this year.

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