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FOREX-Dollar holds near 10-week high as global sentiment remains fragile

Published 29/10/2018, 03:12 pm
© Reuters. FOREX-Dollar holds near 10-week high as global sentiment remains fragile
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* Major currencies stick to relatively tight ranges

* Euro sheds 0.1 pct, yen remains steady

* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh

By Daniel Leussink

TOKYO, Oct 29 (Reuters) - The dollar edged higher against a basket of its key rivals on Monday, not far off a 10-week high hit after data showed U.S. economic growth slowed less than expected and as global risk sentiment remained fragile.

The U.S. currency has found support recently on safe-haven buying as investor demand for riskier assets waned on steep declines in world equity markets on worries over corporate earnings, geopolitical uncertainty and global growth.

"The development in the U.S. equity market is the main focus in the foreign exchange market," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

On Monday, the dollar index .DXY , which measures the greenback's performance against a basket of six major currencies, gained 0.1 percent to 96.446. The index has advanced 1.4 percent this month.

On Friday, it rose as high as 96.860, its best level since Aug. 15, after data showed the U.S. economy slowed less than expected in the third quarter. But it later turned and ended 0.3 percent lower on the day. tensions between the United States and China, and a steady pace of rate increases by the Federal Reserve, have boosted the dollar, which serves as a safe haven in times of turmoil and economic stress.

A strong U.S. economy has also underpinned the dollar, although some weak corporate earnings have started to stoke doubts about the growth outlook, especially amid rising borrowing costs.

The euro EUR= dipped 0.1 percent to $1.1395 even as German Chancellor Angela Merkel's junior coalition partners gave her conservatives until next year to deliver more policy results. common currency has lost 1.8 percent this month on concerns over Italy's free-spending budget that would breach European Union fiscal rules. Markets have been jittery and yields on Italy's bonds have spiked since September as the EU disapproved of Rome's budget plans.

Against the yen JPY= , the dollar held steady at 111.90 yen.

The dollar has weakened 2.3 percent against the yen, which also acts as a safe haven in times of geopolitical turmoil, from a more than 11-month high of 114.55 yen reached on Oct. 4.

Yukio Ishizuki, senior currency strategist at Daiwa Securities, said some market players such as macro-focused hedge funds have started buying back riskier, emerging market currencies which were ravaged earlier this year.

"When financial markets in the United States and across the world are declining, emerging market currencies are usually sold," Ishizuki said.

"The truth is that some of the currencies that saw heavy selling, such as the Brazilian real and the Turkish lira, are being bought back," he said.

MSCI's emerging market currency index .MIEM00000CUS on Monday edged up 0.2 percent to trade 1.2 percent above a more than one-year low hit on Sep. 11.

Far-right lawmaker Jair Bolsonaro won Brazil's presidential election on Sunday, promising to clean up politics, shrink the state and crack down on crime, in a dramatic swing away from the left in the world's fourth-largest democracy. of 0400 GMT, the real BRL= had not yet traded. It had ended Friday's session at 3.6426 per dollar.

Mizuho's Yamamoto expected traders to cash in on long positions in Brazil's real that were largely taken up in the weeks ahead of Sunday's poll.

"It seems that markets are expecting that under a Bolsonaro administration, the pension reform and fiscal deficit reduction may advance," Yamamoto said.

"I think the development on that front will be very slow or will receive difficulties."

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