US Dollar in virtual holding pattern as it logs 3rd straight weekly gain

Frankfurt (May 21)  The US dollar strengthened against the yen Friday but weakened against the euro. However, the greenback’s relatively muted movements suggest investors are settling into a wait-and-see posture as investors contemplate the possibility of the Federal Reserve lifting interest rates as soon as June.

Over the week, the dollar rose against both rivals, building on gains from the previous two weeks.

The buck USDJPY, +0.14%  was at ¥110.10, compared with ¥109.94 late Thursday in New York. The dollar gained 1.3% against the yen over the week. The euro EURUSD, +0.2053%  was at $1.1219, up from $1.1203 late Thursday. The dollar gained 0.8% against the euro over the week.

The ICE Dollar Index DXY, -0.04% , a measure of the dollar against a basket of major currencies, was unchanged at 95.32 and most recently was 0.8% higher over the week.

The dollar has gained traction in recent trade after this week’s release of Fed meeting minutes from April, released Wednesday, emphasized the central bank’s intention to raise benchmark interest rates sooner than later. Policy setters discussed the possibility of a June rate hike if the economy continued to strengthen.

“Today’s action in currency markets is fairly muted, as investors are digesting big moves after the Fed minutes,” said Boris Schlossberg, managing director of G-10 currency strategy at BK Asset Management.

“What investors will be watching now is quality of economic data. If data come in line or better than expected, then expectations for a rate hike either in June or July will increase,” Schlossberg said, adding the dollar, which was oversold, still has further room to strengthen.

“On the dollar-yen, we are likely to see ¥116 by the June Fed meeting,” he said.

Read: Five reasons the dollar will get stronger

On Thursday, Federal Reserve Bank of New York President William Dudley reiterated the chance of a hike occurring sooner rather than later.

However, after Fed Vice Chairman Stanley Fischer didn’t touch on the subject in his speech overnight, “investors appear to have done enough factoring in of a June rate hike for now,” said Ayako Sera, head of research at Sumitomo Mitsui Trust Bank. “We are seeing an intensifying mood to wait until [Fed Chairwoman Janet] Yellen’s comments” scheduled for early next month, Sera said.

Investors were waiting to see if currency issues will be discussed at a meeting of finance chiefs from the Group of Seven leading industrialized nations in Japan on Friday and Saturday. “The recent yen’s weakness lowered the degree of attention [to G-7]. But a rift [between Tokyo and Washington] over whether the yen move has been orderly would make things much complicated,” said Sera.

Read: U.S., Japan rift over yen devaluation brewing

Investors were closely watching tension between the U.S. and Japan over whether the yen’s strength earlier this year was sharp enough to warrant intervention by authorities.

U.S. Treasury Secretary Jack Lew has said the Japanese currency’s recent appreciation was orderly, despite Japanese authorities’ description of the yen movement as “one sided” and speculator-driven. Japanese Finance Minister Taro Aso has said that he was “prepared to undertake intervention” in the foreign-exchange market.

In other currency trade, the euro EURJPY, +0.36%  gained, trading at ¥123.95 from ¥123.19 on Thursday.

Source: MarketWatch