The U.S. dollar, on Thursday, July 20. surged for a second successive day. after falling to a 10-month low earlier this week as some investors pared bearish bets before a European Central Bank meeting that may signal a policy shift later this year.
The dollar’s index against a basket of six major currencies .DXY stood at 95.015, up 0.3 percent, its biggest single day rise since July. 3 and moving further away from a 10-month low of 94.476 touched on Tuesday.
The dollar’s gain was more striking against the relatively higher yielding currencies such as the Australian dollar AUD=D3 and the kiwi NZD= against which it has suffered heavy losses in recent weeks as investors added carry trade bets.
“The dollar has fallen quite quickly in a relatively short span of time and any signs of stabilization in economic data might trigger a burst of short covering so it is a good time to take some profits,” said Viraj Patel, an FX strategist at ING Bank in London.
Among the most important data expected in the coming week, investors will be keenly waiting for second-quarter U.S. GDP data.
Morgan Stanley strategists noted that short positioning in the greenback was at its most extreme since April 2009, a factor that is also helping the dollar’s bounce.
The euro EUR=EBS was the only one bucking the trend with the single currency hovering below a 14-month high, hemmed within tight ranges before the ECB’s rate decision due at 1230 GMT.
With the common currency up 3 percent over the last month and German bond yields firming in recent weeks, its rate-setters will be wary of sending hawkish signals that could risk stifling a broadening economic recovery while inflation is low.
The euro EUR= is now at $1.15135, backing off slightly from Tuesday’s $1.1583, its highest level since May 2016 but still maintaining gains of 3.0 percent since ECB President Mario Draghi’s Sintra speech and comfortably holding above the 1.15 line breached on Tuesday, Reuters reports.
