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BBVA and ING expect long-term dollar decline

Schedule dollar index at intervals of 1 day

The US dollar was on track to avoid a fourth straight weekly decline against a basket of major currencies on Friday, as analysts believe taking profit on short dollar positions is helping to lift the currency.

The dollar index was supposed to end the week unchanged, although overall for the month it was still down 2.56%.

By midday in London, it was up 0.2% on the day. In Asian trading, it posted a four-week losing streak, the longest fall since the six-week decline until late July last year.

The monthly loss will be the largest since the 4% decline in July.

“Taking profit at the end of the month could ultimately help the dollar end today’s very difficult April for the dollar,” said Alexander Dolci, currency strategist at the G10 BBVA.

“In general, we do not expect this trend to have a much longer period in May, as, in our opinion, the correction of the dollar in April may have gone too far, gone too quickly, although in the long term we maintain a bearish view of the dollar trend” …

Dolci added that this is especially true against the euro, as the eurozone has yet to start closing the gap with the US in vaccine distribution, pandemic management and, as a result, economic recovery.

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Chart showing how the dollar could suffer a loss for the fourth week. Reuters data

The Canadian dollar climbed to a more than three-year high of 1.2264 Canadian dollars per dollar on Friday, expecting 1.6% weekly gains, the largest since early November.

Following the Fed’s monetary policy meeting on Wednesday, Chairman Jerome Powell acknowledged the growth of the US economy, but said there was not yet sufficient evidence of “significant further progress” towards a recovery to justify a change in super-soft monetary policy.

This economic growth accelerated in the first quarter, supported by government stimulus programs, setting a course for what is expected to be the highest growth in nearly four decades this year.

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Signs that an improvement in the economy, especially in the labor market, could force the Fed to cut back on its asset buying program earlier, pushed the dollar index, or DXY, to a five-month high in late March.

The Fed’s mild statement was in stark contrast to the Bank of Canada, which has already begun to cut back on asset purchases. The Canadian Commodity Canadian Dollar received additional support from a sharp rise in oil prices to a six-week peak, as well as from higher sawnwood prices.

Rising commodity prices also supported the Australian dollar, which rose 0.2% to $ 0.77785, climbing to a six-week high of $ 0.78180 hit Thursday.

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“We believe that improving yields on procyclical currencies (affected by the global business cycle) should be the main topic for the rest of the year, despite concerns about higher yields in the US,” said Chris Turner, head of global markets at ING.

The euro fell 0.3% to $ 1.2089, near a two-month high of $ 1.2150 set in the previous session. The common currency was up 0.2% over the week and 3.3% over the month.

The yen, the traditional haven, is trading 0.05% higher to hit 108.85 per dollar, near a two-week low of 109.22 since Thursday, representing a loss of about 0.9% over the week.

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