NEW YORK (Dow Jones)--The dollar strengthened slightly against major currencies Friday as traders took profits and squared positions in anticipation of a week of top-level policy meetings.
As equities rallied Friday, the euro and other high-yielding currencies bounced back for part of the day, until the dollar recovered in the late afternoon. The dollar had been on a two-week slide against a broad range of currencies until its fall was stalled Thursday on sagging U.S. equities.
"The dollar has become very oversold over the past weeks, and there was no U.S. economic data [Friday], which was a perfect environment for profit taking," said Kathy Lien, chief strategist for Global Forex Trading in New York.
The U.K. pound was under pressure Friday on reports that the U.K.'s top financial regulator determined Lloyds Banking Group PLC most likely wouldn't be able to raise enough capital to exit from the U.K. government asset-insurance plan.
Late afternoon Friday in New York, the euro was at $1.4699 from $1.4737 late Thursday, according to EBS via CQG. The dollar was at Y91.44 from Y91.17. The euro was at Y134.41 from Y134.38. The U.K. pound was at $1.6232 from $1.6440, while the dollar was at CHF1.0297 from CHF1.0285.
Some analysts said this suggested the Bank of England wouldn't be exiting accommodative monetary policy any time soon. The pound fell to a two-week low of $1.6231 in New York. Further weakness could send the pound toward $1.6100, said Jamie Heighway, a market analyst at payment services company Custom House in Victoria, B.C.
With currencies confined to narrow ranges Friday, investors were looking toward Wednesday's meeting of the Federal Open Market Committee. No increase in ultra-low U.S. rates is expected, so most attention will focus on the statement that accompanies the decision.
The G20 nations also meet next week in Pittsburgh, though they are not expected to discuss currencies. Still, currency traders want to be in a good position to either take further safety in the dollar, or pounce on a strengthening euro, depending on what happens at next week's meetings, analysts said.
In order to hedge their bets, traders took profits on Friday in the higher-yielding euro and moved back into the dollar, although the greenback's gains were small.
Encouraging U.S. economic data since the Labor Day holiday had revved risk appetite and sent the safe-haven dollar down broadly against major currencies since market volumes increased as traders returned from summer holidays.
But the euro lost some steam as it has inched its way through a series of 12-month highs. The euro's current high since last September, reached Thursday in European trading, stands at $1.4768.
Still, with the dollar well within reach of fresh multi-month lows against a broad set of currencies, it remains vulnerable, said analysts.
Barring any surprises at next week's Fed or G20 meetings, Lien said she expected risk appetite to continue to track equities. She expects the Dow Jones Industrial Average to continue its march toward 10,000. The Dow ended up 36.28 points at 9820.20 on Friday. Once the euro is able to sustain its forward progress with support from equities, it should be smooth sailing to $1.50, Lien said.
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