Fed-fuelled dollar forces rival currencies onto back foot
LONDON (Reuters) - The dollar was headed for its best week in nearly nine months on Friday, with rival currencies struggling to shake the pressure exerted by the Federal Reserve's hawkish shift in tone.
With investors pricing in a sooner-than-expected tapering of extraordinary US monetary stimulus, the euro and the yen failed to recoup losses made during the last two days.
Hovering above $1.19, the euro was just 0.05% higher against the dollar and on course for its worse week since October with a 1.6% fall.
With a dovish European Central Bank seemingly far behind the Fed in the monetary policy cycle, traders will be reluctant to buy euros against dollars.
"As no important data is due for publication today or at the start of next week, the FX market is likely to feel mainly the after-effects of the Fed meeting," they added.
With investors busy closing short positions since the Fed meeting, the dollar index hit a more than two-month high of 92.071, and is on track for a 1.6% weekly gain, its largest since September.
At 1104 GMT, the dollar index was up 0.05% at 91.915.
It was little moved by the Bank of Japan keeping its main policy settings steady, as expected.
The Swiss franc was also on course to lose about 2.3% against the dollar this week after the Swiss National Bank signalled on Thursday that monetary policy would stay ultra-loose for the foreseeable future.
Sterling fell 0.2% to $1.3899 and was headed for a weekly loss of 1.5% while fresh data showed an unexpected fall in Britain's retail sales.
The Australian dollar struck its lowest since December at $0.7508 and the Kiwi fell to its weakest since April at $0.6982 , defying eye-popping reports on Australian jobs and New Zealand growth this week.
In the world of crypto currencies, bitcoin failed to get a lift from the news that Spanish bank BBVA would open a bitcoin trading service to all private banking clients in Switzerland. Bitcoin was down 0.5% at $37,879.
The shakeout on foreign exchanges has been triggered by Fed forecasts, or 'dot plots,' showing 13 of the 18-person policy board saw rates rising in 2023, versus only six previously, with the median board member tipping two hikes in 2023.