NEW YORK (Reuters) - The dollar rose on Thursday, bolstered by gains in the U.S. stock market and a rebound in oil, suggesting that the Federal Reserve may not be as constrained to push ahead with its plan to raise interest rates several times this year.
Oil prices have been volatile the first two weeks of the year, but on Thursday, U.S. crude futures were up more than 2 percent CLc1. That supported shares on Wall Street, with key indexes up more than 2 percent as well. [O/R] [.N]
In the currency market, that means gains for the dollar and losses for the safe-haven yen and low-yielding euro. Both tend to gain in times of market anxiety because they are often used to fund investments in risky assets. They consequently rise back up when there is a retreat from those assets.
“After several sessions of being risk off, we’re seeing a bit of a modest reprieve,” said Mazen Issa, senior FX strategist at TD Securities in New York.
“In that environment, we’re seeing the funders (euro, yen) underperform and the high-beta currencies (higher-yielders) outperform.”
In late trading, the dollar index rose 0.2 percent to 99.086 .DXY.
The euro fell 0.1 percent against the dollar to $1.0860 EUR=, while the greenback gained 0.3 percent to 118.06 yen JPY=.
The euro had earlier benefited from a Reuters report saying European Central Bank policymakers see less need for further stimulus in the near term.
Reuters reported that many ECB policymakers are skeptical about the need for further policy action and even with lower inflation and growth forecasts for 2018 in March, the ECB should not act immediately.
“In a sense, that’s understandable,” said Lee Ferridge, head of macro strategy for North America at State Street in Boston.
“Euro zone data is doing pretty well. Growth is not so bad. And given the negative rates and money-printing now until 2017, there really is no need for further stimulus at the moment.”
The ECB also holds a policy meeting next week, which is expected to be uneventful. Yet the big test comes when the ECB releases its initial 2018 growth and inflation forecasts on March 10.
Canada’s dollar fell, meanwhile, to its lowest since April 2003 with a further slide in crude prices expected to undermine the resource-based Canadian economy. That fueled speculations of a rate cut from the Bank of Canada as early as next week.
The U.S. dollar was last flat on the day at C$1.4361 CAD=.
Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Jemima Kelly in London; Editing by Chizu Nomiyama and James Dalgleish