Currencies: U.S. dollar extends weakening trend as euro, pound gain

The U.S. dollar softened against its main rivals on Wednesday, with the euro and British pound notably strengthening against the greenback, as investors appeared to wager that an improving outlook for the eurozone economy would provide a greater boost to local currencies than expectations for further increases in interest rates and fiscal stimulus in the U.S.

Still, currency moves came amid an shortened week of trade, and many investors are likely to remain on vacation until after the start of 2018. Most markets in Europe were closed on Tuesday for the extended Christmas holiday.

Where are currencies trading?

The ICE U.S. Dollar Index DXY, -0.29% a measure of the dollar against a basket of six major rivals, was down 0.2% at 93.02, compared with 93.25 late Tuesday in New York.

The WSJ Dollar Index BUXX, -0.19% which gauges the buck against 16 rivals, was down 0.2% at 86.57, compared with 86.74 on Monday.

The euro EURUSD, +0.3289%  rose to $1.1901 from $1.1859 late Tuesday in New York. The shared currency had tapped a 2½-week high last week at $1.1901.

The British pound GBPUSD, +0.1570% traded at $1.3401, compared with $1.3374 Tuesday.

Against the Japanese yen USDJPY, +0.03% the dollar was little changed to trade at ¥113.30 versus ¥113.23 in the prior session.

As for the Mexico-U.S. pair USDMXN, -0.7439% one dollar bought 19.7404 pesos, compared with 19.8670 on Tuesday, while Canada’s dollar USDCAD, -0.3468%  strengthened against the greenback to change hands at C$1.2643, versus C$1.2688 on Tuesday. Canada’s currency got a lift partially from Tuesday’s runup in crude-oil prices CLG8, -0.52% to near 2 ½-year highs. However, oil was pulling back somewhat in Wednesday trade.

What’s driving the market?

Expectations for higher interest rates from the Federal Reserve have so far failed to boost the dollar. The greenback, as measured by the ICE U.S. Dollar Index, has declined 9% so far in 2017, with the outlook for the currency mixed as the European Central Bank is expected to take its foot off the pedal of quantitative easing in 2018.

That could provide further headwinds to the U.S. currency as investors driven out by low interest rates in Europe return to its shores for yield.

Meanwhile, crude-oil futures headed slightly lower Wednesday, which can influence currency trade in crude exporters like Canada. Stronger crude values also helped lift the Mexican peso, which has faced selling pressure amid fears that the North American Free Trade Agreement and the GOP tax bill will draw investment away from the U.S. neighbor.

What are strategists saying?

“The combination of a weakening U.S. dollar and strengthening commodity prices has ignited big rallies in resource currencies. The loonie is leading the charge, breaking out overnight…” wrote Colin Cieszynski, vice president of the Canadian Society of Technical Analysts, in a Wednesday research note.

What data are ahead?

Consumer confidence fell to 122.1 in December, a month after touching its highest levels since 2000. Economists polled by MarketWatch had forecast the index to read 127.5. Nonetheless, optimism among consumers remain close to historical highs.

The National Association of Realtors reported pending home sales grew by 0.2% in November.

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