Dollar poised for 5th weekly gain on Fed expectations, PBOC backs yuan.

By Kevin⁢ Buckland

TOKYO (Reuters) – The dollar is on a winning streak, heading for its fifth consecutive week⁢ of ‍gains against major peers. This is the longest winning streak in 15 months. The resilience of ‌the U.S. economy is making a case for higher interest ⁤rates, while⁤ China’s struggling recovery is driving demand for the safety ⁣of the U.S. currency.

However, on Friday, the dollar’s gains were ‍trimmed as traders⁢ remained cautious about the ⁢risk of intervention due to its rally against the​ yen. The yuan​ also edged up after the People’s ⁣Bank of China set a daily ⁢fixing⁢ that was much stronger than expected.

The‌ U.S. dollar index, which measures the currency ‍against six​ developed-market rivals, including the yen and euro, eased 0.14% to 103.26 ​in‍ the Asian morning, after reaching ‌a two-month ​high of 103.59 overnight.

For the⁣ week, it is set​ to gain 0.39%.

Minutes from the Federal Reserve’s last meeting, released on Thursday, showed that most ⁢members of the rate-setting committee see “significant​ upside risks to inflation,” indicating a⁢ bias towards ⁢further rate increases.

Strong economic data, particularly⁢ retail sales, have⁣ already strengthened ⁤the case‌ for additional⁤ tightening.

All of these factors have contributed to pushing‍ 10-year Treasury yields to⁤ their‌ highest level ​since October, ⁢reaching ⁣4.328% on ​Thursday.

“The market wants ​the Fed to go on hold, but​ the ‍data just isn’t supporting that,” said Tony Sycamore, a​ markets analyst at IG.

“The risk aversion, the⁣ higher yields,​ the resilient economic data… all of those things have played‍ out perfectly for the U.S. dollar.”

Sycamore added that some profit-taking from the dollar’s rally is expected over the weekend, but ‌a break above 103.70​ next week seems likely, which could lead to tests of the May peak at 104.70 and then 105.88.

Against the yen, the dollar eased 0.22% to 145.515 on‌ Friday, after reaching a nine-month peak of 146.40 overnight.

Last autumn, the‌ dollar’s surge beyond 145 ‍prompted Japanese authorities to intervene ⁤in the ‍market, ⁢buying ⁤yen for the⁤ first time in a generation.

The‍ euro rose 0.2% to $1.0892, bouncing back from Thursday’s ⁣six-week low of⁣ $1.08565.

Against the yuan, the dollar edged 0.11% ‌lower to 7.2895 in offshore trading. The Chinese currency received support from the central bank’s official mid-point setting at 7.2006, ‍which was more than 1,000 pips‍ stronger than Reuters’ estimate.

In offshore markets, the Chinese ⁤currency hit a‌ nine-month low of 7.3490 on Thursday.

China’s economic troubles have deepened, with ‍property developer⁤ China Evergrande⁣ seeking Chapter 15 protection in a ⁣U.S. bankruptcy⁢ court.

Despite increasingly grim economic⁤ outlooks, Beijing has⁢ yet to provide significant stimulus.

The Australian dollar, often⁣ seen as a proxy for⁣ China and closely linked to the yuan in recent days, rose 0.25% to $0.6418, continuing its rebound from ‌Thursday’s nine-month low of $0.6365.

Meanwhile, the world’s largest cryptocurrency, bitcoin, is struggling near a ‍two-month low following an 8.5% plunge to $26,266 on Thursday. It is currently trading at​ $26,609.

“There comes‍ a point when it just couldn’t ignore ​the rise in (U.S. Treasury) yields any longer,” said IG’s Sycamore, who⁣ believes ​there is potential for a decline to $24,500.

“The question is whether you want your assets in a speculative section ⁤of the market during a bond‌ market ⁢rout.”

(Reporting by Kevin Buckland; Editing ⁢by ​Jacqueline Wong)

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