By Anneken Tappe and Aaron Hankin
Pound retraces gains after EU negotiator speaks on Brexit
The U.S. dollar's performance in the face of stock market wobbles that sent jitters throughout financial markets this week has the greenback on track for its best weekly performance in more than a year.
What are currencies doing?
The ICE U.S. Dollar Index , a measure of the buck against a basket of six currencies, was up 0.1% at 90.38. For the week, the index finished higher by 1.3%, its best since December 2016, according to FactSet data.
The broader WSJ U.S. Dollar Index was little changed at 84.21.
The euro was unchanged at $1.2245.
The British pound retraced the gains it posted after the Bank of England delivered a hawkish outlook on Thursday, finishing the week at $1.3826, down from $1.3914.
Against perceived havens from market wobbles, such as the Japanese yen and the Swiss franc , the dollar was mixed. The buck last bought Yen108.72, little changed from this mornings open, and 0.9399 Swiss francs up from 0.9361 francs.
What is driving the market?
The foreign exchange market continues to be driven by the turmoil in the equity markets (http://www.marketwatch.com/story/us-stock-futures-rise-as-dow-faces-worst-week-since-the-global-financial-crisis-2018-02-09), as analysts assess the pullback late Thursday that led the Dow Jones Industrial Index and the S&P enter correction territory--a 10% drop from their peak.
The equity market madness continued Friday as the Dow posted another 1,000 point daily range, eventually finishing higher by 1.3%. The late afternoon volatility did little shake currency markets.
Congress voted to pass a budget deal (http://www.marketwatch.com/story/senate-passes-budget-deal-as-government-remains-shut-down-2018-02-09) that will provide the U.S. government with funding for the next two year, after it shut down briefly over night. President Donald Trump said in a tweet (http://twitter.com/realDonaldTrump/status/961957671246159875) early Friday that he has signed the bill into law, ending the second government shutdown of 2018.
The British pound retraced Thursday's gains, which came on the back of a hawkish signal from the Bank of England. On Friday, however, worries over the Brexit progress overshadowed the interest-rate-hike potential, after EU chief negotiator Michel Barnier said a transition deal may not be in reach (https://www.fnlondon.com/articles/barnier-warns-brexit-transition-not-a-given-20180209)for the moment. Moreover, U.K. economic data showed a slowdown in industrial output (http://www.marketwatch.com/story/uk-industrial-output-hit-by-north-sea-shutdown-2018-02-09).
Read:A U.K. rate rise in May? Analysts digest hawkish surprise from BOE (http://www.marketwatch.com/story/a-uk-rate-rise-in-may-analysts-digest-hawkish-surprise-from-boe-2018-02-08)
Meanwhile, euro traders are also following developments in Germany, where a grand coalition between Angela Merkel's Christian Democrats and the Social Democrats, or SPD, is still not set in stone. Martin Schulz, who previously announced he would step down as SPD leader on Thursday to take a position in the newly agreed coalition, said Friday he wouldn't take the role as foreign minister. This is reintroducing fears that SPD members, who still get to vote on the coalition agreement, could vote against the plans, leaving Germany with a minority CDU government or new elections.
Read:Here's what Germany's next finance minister could mean for the euro (http://www.marketwatch.com/story/heres-what-germanys-next-finance-minister-could-mean-for-the-euro-2018-02-08)
What are strategists saying?
The dollar's weekly gain "will bolster expectations that its broad run lower since mid-December can stabilize or reverse somewhat in the near-term," wrote Scotiabank strategists Eric Theoret and Shaun Osborne.
"This week's downturn has not always felt like a typical 'risk off' event for the G-10 currencies, but overall returns suggest that the basic market reaction function that we would have anticipated remains intact," they said, adding that the Japanese yen was the best performer on the week.
On the pullback in the British pound, ING FX strategist Viraj Patel said: "Given that markets will be fully aware of this Brexit-contingent hawkish signal, the pound's gains in the near-term may be slightly more tempered than one would have typically expected from such forward guidance."
What are the data?
Wholesale inventories grew by 0.4% in December, slower than the 0.8% rate recorded in November.
-Anneken Tappe; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires