U.S. equities had sagged on Thursday after John Williams, president of the Federal Reserve Bank of San Francisco, said the Fed could begin easing back on the monetary gas pedal this summer and end bond buying late this year.
The dollar held firm near a 10-month high versus a basket of currencies on Friday after a U.S. Federal Reserve official said the central bank may begin to taper its asset buying this summer, while Asian shares were mixed.
Although Williams does not have a vote in the Fed’s policy-setting panel this year, his comments had weighed on shares, since the Fed’s purchases of $85 billion a month in bonds has been a significant driver of the rally in equities that has taken U.S. stock indexes to record highs this year, reports Reuters.
The dollar index, which measures the dollar’s value against a basket of currencies, rose 0.4 percent to 83.927 .DXY, nearing a 10-month high of 84.094 set earlier this week.
The dollar’s strength will probably become more prominent later this year, said Sim Moh Siong, FX strategist for Bank of Singapore.
“What we’re seeing right now is more of a rehearsal. It’s likely to pan out on a more sustained basis by late this year,” he said.
“Eventually I think the broad tone of data should show that the U.S. economy is holding up much better than the rest of the world and that would lend more durable support for the U.S. dollar,” he said.
The dollar is likely to gain support particularly against other low-yielding currencies such as the euro, the yen, sterling and the Swiss franc, he added.