Dollar Gains on Bottom Fishing

Closing the Week with Forexpros

by Forexpros Staff

The dollar rose against most major global currencies on Friday as investors snapped up nicely priced positions in wake of a selloff earlier this week stemming from dovish comments out of the Federal Reserve.

Concerns Europe will be slower than expected to tackle its debt crisis fueled dollar demand as well.

In U.S. trading on Friday, EUR/USD was down 0.39% at 1.2516.

Earlier this week, the Federal Reserve said it would consider stimulating the U.S. economy if needed, the U.S. central bank revealed in the minutes of its recent two-day monetary policy meeting that began on July 31.

“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” the minutes read.

The comments sparked a dollar selloff on the notion that the Federal Reserve will announce plans to roll out a new round of quantitative easing soon.

Quantitative easing, under which the Fed buys bonds such as Treasury holdings and mortgage-backed securities from banks, weakens the dollar with the aim of spurring recovery.

However, data since then has surprised on the upside, including stronger-than-expected retail sales and consumer sentiment figures.

Friday saw bullish data as well, which sparked demand for the greenback.

The Census Bureau reported earlier that U.S. durable goods orders rose to 4.2% in July from 1.6% in June, whose figure was revised up from 1.3%.

Analysts had expected durable goods orders to rise 2.4% last month.

The dollar rose on the news despite comments from Federal Reserve Chairman Ben Bernanke, who told a lawmaker in a letter that the Fed had the “scope for further action.”

The dollar also rose out of concerns in Europe, where market talk that the European Central Bank will buy Spanish and Italian government debt to ease the debt crisis grew.

However, a German court is still deciding if participating in European bailout activities violates the country’s law, which sent investors returning to the dollar to await more definitive steering currents to guide them.

The greenback, meanwhile, was up against the pound, with GBP/USD trading down 0.33% at 1.5808.

The U.K. gross domestic product contracted 0.5% in the second quarter, less than market forecasts for a 0.6% contraction and an improvement from an original estimate of a 0.8% decline in output.

The dollar was up against the yen, with USD/JPY trading up 0.27% at 78.70, and up against the Swiss franc, with USD/CHF trading up 0.37% at 0.9593.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.27% at 0.9912, AUD/USD down 0.31% at 1.0409 and NZD/USD down 0.19% at 0.8112.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.26% at 81.60.

Gold

Gold prices fell on Friday as investors sold the metal for profits, ending a rally fueled by expectations the Federal Reserve will stimulate the economy via monetary easing measures in the near future.

Upbeat durable goods orders helped fuel profit taking.

On the Comex division of the New York Mercantile Exchange, gold futures for October delivery were down 0.02% and trading at USD1,670.25 a troy ounce, up from a session low of USD1,662.95 and down from a high of USD1,672.75 a troy ounce early during the session.

Gold futures were likely to test support at USD1,662.95 a troy ounce, the earlier low, and resistance at USD1,675.15, the high from Aug. 23.

Gold prices rallied in recent sessions on hopes the Federal Reserve will stimulate the U.S. economy.

Elsewhere on the Comex, silver for September delivery was up 0.34% and trading at USD30.560 a troy ounce, while copper for September delivery was down 0.29% and trading at USD3.482 a pound.

Oil

Crude oil futures gained in U.S. trading on Friday after forecast models predicted that Tropical Storm Isaac would head for the Gulf of Mexico, where many oil rigs operate.

Concerns that Europe will struggle to firewall its debt crisis tempered crude’s gains.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in October traded at USD96.42 a barrel on Friday, up 0.16%, off from a session high of USD97.16 and up from an earlier session low of USD95.14.

Isaac is due to pass over Cuba and towards the Gulf of Mexico over the weekend, possibly intensifying into a hurricane.

Oil rigs have said they will begin evacuating workers.

Bullish news came out of the U.S. as well.

The Census Bureau reported earlier that durable goods orders rose to 4.2% in July from 1.6% in June, whose figure was revised up from 1.3%.

Analysts had expected durable goods orders to rise 2.4% last month.

Meanwhile in Europe, market talk that the European Central Bank will buy Spanish and Italian government debt bolstered crude as well, although a German court is still deciding if participating in European bailout measures violates the country’s law, which tempered gains.

On the ICE Futures Exchange, Brent oil futures for October delivery were down 0.71% and trading at USD114.19 a barrel, up USD17.77 from its U.S. counterpart.

Stocks

U.S. stock prices rose on Friday after Federal Reserve Chairman Ben Bernanke told a U.S. lawmaker the U.S. central bank has the scope to loosen monetary policy.

At the close of U.S. trading, the Dow Jones Industrial Average ended up 0.77%, the S&P 500 index was up 0.65% while the Nasdaq Composite index was up 0.54%.

In a letter to a U.S. congressmen, Bernanke said the Federal Reserve had scope for further policy action, which sent stocks rising.

Federal Reserve officials have said they cannot rule out stimulating the U.S. economy with a new round of quantitative easing.

With quantitative easing, the Fed buys bonds such as Treasury holdings or mortgage-backed securities from banks, pumping the financial system full of liquidity and weakening the dollar to spur recovery.

Stocks rise under such policy as a side effect, and Bernanke’s comments rekindled expectations for Fed intervention.

Stocks were also boosted by the Census Bureau report of unexpectedly strong U.S. durable goods orders.

Leading Dow Jones Industrial Average gainers included Verizon Communications, up 2.20%, American Express, up 1.86%, and Kraft Foods, up 1.50%.

The Dow Jones Industrial Average’s worst performers  included Intel, down 0.52%, Hewlett-Packard, down 0.34%, and Caterpillar, down 0.22%.

European indices, meanwhile, finished higher.

After the close of European trade, the EURO STOXX 50 rose 0.21%, France’s CAC 40 rose 0.02%, while Germany’s DAX 30 finished up 0.31%. Meanwhile, in the U.K. the FTSE 100 rose 0.01%.

Investors are planning for the Federal Reserve’s annual symposium at Jackson Hole, Wyoming next week, where Bernanke and ECB President Mario Draghi will speak.