The dollar is heading for its best weekly gain in three months on Friday, with confidence in the U.S. economic recovery.
In Asian trade, the dollar index hit a two-month high amid signs of resilience in the labor market. Closely watched U.S. nonfarm payroll figures are due later. It retreated in earlier London deals.
The greenback also renewed highs versus the euro and yen during Asian trade. In European trade, though, both currencies recouped their losses.
For the first time since Dec. 1, the dollar index touched 91.60. That was before drifting back lower to 91.375 by 0853 GMT.
The gauge rose daily this week and is on track for a 1.1% weekly gain, the most since Nov. 1. The previous week, it was building on a 0.3% rise.
A rise in longer-term U.S. Treasury yields supported the currency. Treasury yields came as traders positioned for massive fiscal spending.
Democrats in the U.S. Senate were ready for a marathon voting session. That was aimed at overriding Republican opposition to President Joe Biden’s $1.9 trillion COVID-19 relief proposal.
A softening correlation of the dollar with equity markets was noticeable, Strategists at ING said. Though it was hard to account for, they added.
They also noted that the U.S. Treasury yields have picked up in the past week. Moreover, have been matched by an equivalent rise in German bunds.
Investors and analysts are weighing whether dollar strength this year is a temporary position adjustment. This is after a 7% drop for the dollar index in 2020, or a longer-lasting shift away from dollar pessimism.
Potentially, there are a lot of dollar shorts to cover, against the yen, in particular. This is where hedge funds had racked up their biggest bearish bets since 2016.
On Friday, the dollar was 0.2% lower at 105.36 yen. It earlier edged as high as 105.70 for the first time since Oct. 20.
The euro was 0.2% higher at $1.1981 after dipping to $1.1952. It was a level not seen since Dec. 1.
Bank of England Refuses Negative Rates Signal
The Pound Euro (GBP/EUR) exchange rate surged higher yesterday. This was after fairly mixed movement for most of the week.
The GBP bullishness was built over the week and it saw the pair rocket after the latest BoE news.
The pair opened this week at the level of 1.1291, and it has been trending with an upside bias since. BoE news pushed GBP/EUR to new highs after a dip closer to the week’s opening levels yesterday.