Dollar near three-year low, heading for worst run since 2015

Published Jan 19, 2018

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LONDON - The dollar laboured near a

three-year low against a basket of currencies on Friday, heading

for a fifth week of falls that would be its longest losing

streak since May 2015.

The U.S. currency slipped to its lowest since December 2014

this week, with investors selling on the view that other central

banks will join the Federal Reserve in looking to raise

ultra-low interest rates adopted to combat the 2008 global

financial crisis and subsequent recessions.

The dollar index stayed close to those levels on Friday,

with fears of a potential U.S. government shutdown also

weighing. It was 0.3 percent on the day at 90.243, just

off Thursday's low of 90.113. It has lost about 2 percent so far

in 2018.

The U.S. House of Representatives passed a bill on Thursday

to fund government operations through to Feb. 16 and avoid

agency shutdowns this weekend when existing allocations expire.

The bill has yet to be approved by the Senate, where it faces an

uncertain future.

"Odds of a U.S. government shutdown have risen sharply in

the past 24 hours," said ING currency strategist Viraj Patel.

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"While we would expect such noise to keep the dollar on the

back foot, any fundamental fallout at this stage would seem

premature – not least as history tends to show that some sort of

conciliatory approach to keep the government functioning in the

long-run will ultimately prevail within Congress."

The prospect of Senate approval has been complicated by

President Donald Trump saying that an extension of funding for

the children's health insurance programme, a Democratic

priority, should not be included.

The euro edged up 0.3 percent to $1.2276, near a

three-year high of $1.2323 struck on Wednesday. Having advanced

more than half a percent this week, the common currency could

post a fifth consecutive week of gains.

The dollar slipped by half a percent to 110.60 yen,

with its rebound from Wednesday's four-month low of 110.19

already fading despite a rise in U.S. debt yields.

A tiny reduction in the Bank of Japan's bond buying this

month was enough to spark speculation about possible

modification of policy, even though many market players think

any move will be many months away.

"Markets are increasingly sensitive to the prospect of a

less-dovish BOJ, which is putting pressure on dollar/yen,"

analysts at UBS Wealth Management said in a note, adding that

they will be looking to the BOJ's policy meeting next week to

gain more clarity on the central bank' stance.

"For now, we do not think the BOJ has any urgency to shift

its yield curve control regime," they added.

Another underlying factor behind the dollar's weakness has

been global investors, including sovereign wealth funds and

central banks, diversifying their holdings by switching more

funds into other currencies.

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