By Kevin Buckland
TOKYO, July 1 (Reuters) – The dollar was little changed on Friday against its major peers, but was on course for its best week in four as investors weighed the boost from a tighter monetary policy. Federal Reserve and the risks of a US recession.
The dollar index, which measures the currency against six peers, edged up 0.07% in Asian trading, after falling 0.32% overnight when it was undermined by data weaker than expected consumer spending.
For the week, it gained 0.66% in a complex push and pull as fears of a global slowdown boosted the greenback’s appeal due to its safe-haven status. The market will be watching weak US ISM manufacturing numbers due later in the day.
“USD sentiment has deteriorated on growing recession fears, but focusing on US growth in isolation has never been a good way to trade the USD,” RBC strategists wrote. Capital Markets in a note to clients.
The odds are extremely low that the United States will slip into recession while the rest of the world does not, strategists said. The dollar and other safe-haven currencies like the yen and Swiss franc would benefit at the expense of commodity currencies and the pound for the duration of a global slowdown, they added.
The Fed has raised the key rate by 150 basis points since March, half of it last month in the biggest central bank hike since 1994. The market is betting on another of the same magnitude at the end of this month.
The European Central Bank is expected to raise interest rates this month for the first time in a decade, although economists are divided on the size of any hike.
Markets will look to Eurozone inflation data due later today to get a better idea of the ECB’s aggressiveness.
The euro slipped 0.16% to $1.0469 on Friday, falling after dollar weakness on Thursday saw it rise 0.39% to break out of a two-week low at $1.0381.
For the week, it is down 0.86% as investors judge the economic situation in Europe to be more precarious than in the United States, made worse by an energy crisis fueled by the war in Ukraine.
The yen was roughly flat, with one dollar buying 135.77 of the Japanese currency.
Mid-week, the yen fell to a multi-decade low of 137.00 to the dollar, as the Fed’s aggressive stance contrasted sharply with the Bank of Japan’s dovish stance.
Since last Friday, the dollar has gained 0.41% against the yen, which would be a fifth weekly gain.
The pound fell 0.26% to $0.1.21475, reversing Thursday’s 0.45% rise. For the week, it was down 1.02%.
The risk-sensitive Australian dollar was also down 0.26%, changing hands at $0.6885. It fell 0.81% this week.
The Reserve Bank of Australia decides its policy on Thursday and the markets expect a hike of half a point in the key rate. But that didn’t help the Aussie much, which instead followed lower commodity prices as the global economic outlook deteriorated.
“We have been arguing for weakness below $0.70 for some time, and that we would give this decline time to unfold, especially given the widespread stagflation/recessionary pressures,” Westpac strategists wrote in a note, picking $0.6750 as “the obvious next target” for the currency.
(Reporting by Kevin Buckland; Editing by Himani Sarkar)