Currencies: Dollar index heads for worst week in 3, Russian ruble rallies on rate hike

Currencies: Dollar index heads for worst week in 3, Russian ruble rallies on rate hike

A U.S. dollar index is on track for a nearly 1% weekly drop, thanks to continued weakness on Friday, while in emerging markets, Russia was the latest central bank to bump up interest rates.

The U.S. dollar remained on the defensive with the popular ICE U.S. Dollar Index DXY, -0.01% in marginally negative territory at 94.470. For the week, the gauge is looking at a 0.9% drop so far, its worst performance in three weeks, according to FactSet.

“The combination of a softer U.S. inflation coupled with a less dovish than expected ECB, a Bank of England lifting growth forecasts — while warning that a Brexit without an agreement could spur higher mortgage rates — and a more aggressive rate hike by Turkey conspired to force the dollar lower,” wrote Brown Brothers Harriman strategists Marc Chandler and Win Thin, in a note.

The euro EURUSD, +0.0171%  and British pound GBPUSD, -0.1144%  were both slightly stronger, buying $1.1704 and $1.3123 respectively.

Data showed Thursday that U.S. consumer prices rose 0.2% in August, versus 0.3% expected.

Friday’s economic calendar including August retail sales at 8.30 a.m. Eastern, industrial production and capacity utilization for August at 9.15 a.m. Eastern and July consumer sentiment at 10 a.m. Eastern.

This week’s central bank bonanza continued in Russia Friday, where the central bank raised its key interest rate — the one-week repo rate — to 7.5%, surprising market participants who had expected rates to be on hold at 7.25%.

The ruble USDRUB, -0.7930%  rallied in response versus the greenback. One dollar last bought 67.586, down sharply from 68.258 ruble late Thursday in New York.

Russia’s inflation read 3.1% on an annualized basis in August, its highest rate in a year but below the central bank’s 4% target, the BBH strategists noted.

“More importantly, the U.S. announced another round of tougher sanctions. Recall that inflation spiked up to 175% in 2015 as Ukraine-related sanctions hit and the ruble plunged,” they said. “The bank was forced into an aggressive tightening cycle, hiking rates from 5.5% to 17% in less than a year. We believe a similar dynamic will be seen in the coming months.” 

Want news about Europe delivered to your inbox? Subscribe to MarketWatch’s free Europe Daily newsletter. Sign up here.

Related posts