Asian Session – Dollar pauses for breath but oil heads back up again

Raffi Boyadjian, XM Investment Research Desk

Fed rate hike talk continued to dominate the market theme on Friday but the dollar took a pause on the week’s last day of trading. On Thursday, New York Fed President William Dudley further reinforced expectations that the Fed could raise rates in June or July. Dudley said the Fed is “on track to satisfy a lot of the conditions” adding that he was surprised that the markets had not priced a higher probability of a rate rise.

The dollar held on to most of its gains on Friday but was off yesterday’s highs. The dollar index hit a 7½-week high of 95.50 on Thursday before easing to around 95.25 in today’s Asian session. Against the yen, the greenback was trading slightly below yesterday’s three-week high of 110.38 yen.

Meanwhile, the euro firmed slightly on Friday after ECB executive board member Benoit Coeure said that the central bank was not considering cutting the deposit rate further at present. The single currency rebounded from a near two-month low of 1.1179 dollars yesterday to climb back above 1.12 dollars in today’s Asian session.

The pound was unable to hold on to the 1.46 level against the greenback as profit taking dragged the British currency to 1.4552 dollars in late Asian trading. Sterling touched a 2½-week high of 1.4663 dollars yesterday following stronger-than-expected retail sales figures which allayed fears that the UK economy was heading for a sharp slowdown. There is also growing optimism that support for Britain to stay in the EU is on the rise. This has helped the pound the recoup some of its losses against the euro in recent weeks as the single currency has slumped to 3-month lows at around 0.77 pounds.

In commodities, oil prices posted a rebound on ongoing supply concerns from Nigeria and Venezuela after coming under pressure from the resurgent dollar. WTI futures recovered from yesterday’s low of $47.25 a barrel and was testing $49 in Asian trading on Friday.

Coming up later today, Eurozone current account numbers will be the only major data in the European session, while in the US session, Canadian inflation and retail sales figures will be eyed along with US existing home sales and the latest weekly US crude oil rig count. A speech by the Fed’s Tarullo may also attract some attention.

Looking ahead to the weekend, investors will be watching the G7 meeting taking place in Japan for any new policy approach, though there is little expectation of any new initiative between the world’s seven biggest economies.