Dollar dips in profit taking but many still bullish

18/12/2016 05:38 AST

The dollar retreated Friday in profit taking along with US stocks, but analysts said the prospects still looked good for gains in the greenback.

The decline in US stocks was led by large banks and a handful of shares, such as Caterpillar, that had won big gains in the post-election rally.

Frankfurt, Paris and London were slightly up at the European close, while Tokyo closed at a fresh high for 2016 ahead of next week’s meeting of the Bank of Japan.

The dollar, which rose sharply for two days following the Federal Reserve’s decision raise interest rates Wednesday, pulled back against the euro and other currencies.

“Both the speed and velocity of the move has been incredible,” said BK Asset Management analyst Kathy Lien said of the dollar’s rise. “When such abrupt fluctuations occur, it is natural to expect profit taking.”

But Lien said the Fed’s decision this week implied the dollar’s retreat could be brief. “Fundamentally, the Federal Reserve gave investors a strong reason to continue buying US dollars this past week,” she said.

Dealers said the greenback would remain well supported if US President-elect Donald Trump delivers on his pledges for huge spending on infrastructure, tax cuts and deregulation. Looking ahead to next year, some experts believe the euro could reach dollar parity with elections on the horizon in France and Germany — the eurozone’s two biggest economies. “A more hawkish Fed guarantees the dollar remains the currency to own,” said Lee Wild, head of equity strategy at stockbroker Interactive Investor.

“If Trump delivers promised fiscal stimulus it will remain so in 2017, too.” However, some market participants sounded a cautious tone. “There is a wariness as to just how many interest rate hikes we will see next year,” said Jamieson Blake, retail sales manager at ADS Securities.

“After all, at this time last year Yellen was suggesting we would see four quarter-point moves in 2016.”

Arab News