Dollar extends two-week run of gains, data eyed

LONDON - 8 October 2018: The dollar climbed on Monday, building on last week’s gains as weakness in global markets, led by Chinese equities, and recent strong U.S. data boosted demand for the greenback.

Against a basket of its rivals the greenback rose 0.2 percent to 95.85, edging towards a 14-month high of 96.991 hit in mid-August.

“The dollar has been supported by some strong data but with the market already long dollars at these levels, new data has to surprise investors by a bigger margin to push it higher,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.

The dollar climbed half a percent last week, marking its second consecutive week of gains as hedge funds ramped up their dollar holdings by $3.4 billion to $28.7 billion last week, the largest since end-December 2016, according to latest data.

The euro fell a quarter of a percent to $1.15 and nearing a low of $1.1463, its lowest since Aug, 20, 2018 as a fresh rise in Italian bond yields weighed on investors’ minds.

Italian politics remained a drag as the European Commission warned the country’s budget deficit breached past commitments, leading Rome to insist it would “not retreat” from its spending plans.

Moves were limited by a lack of liquidity with Japan on holiday and the U.S. bond market on a break. A sudden and steep rise in Treasury yields had underpinned the dollar for much of last week.

Yields on 10-year Treasuries hit a seven-year peak on Friday as data showed the unemployment rate falling to its lowest since 1969. [US/]

The big focus for dollar bulls this week will be the release of U.S. CPI data on Thursday. Markets expect a 0.2 percent increase on a monthly basis in September, similar to last month and a bigger increase will bolster U.S. rate hike bets in 2019.

Sterling fell 0.4 percent to $1.3077 as markets focussed on any substantial breakthrough in Brexit negotiations Britain moved nearer to an exit deal with the European Union.

EU Brexit negotiators believe a deal with Britain on leaving the bloc is “very close”, sources said, in a sign a compromise on a major sticking point - the future Irish border - might be in the making.