Dollar’s five-week winning streak ends as risk sentiment rebounds

The dollar edged lower against a basket of major currencies on Friday, on track to end its five-week winning streak, as global risk appetite rebounded, helping reduce demand for the safe-haven currency.

Global stock markets have rallied this week as fears about a stagflationary economy have been eased by forecast-beating corporate earnings in the United States.

Unexpectedly strong US retail sales data for September also boosted sentiment. Retail sales rose 0.7 per cent last month, versus expectations of a 0.2 per cent decline, helped in part by higher prices.

"The risk appetite here remains really, really strong for the time being," said Boris Schlossberg, managing director of FX strategy at BK Asset Management.

"That's helping the high beta currencies like the pound, the euro and the Aussie, simply because the market is feeling much more positive," he said.

The dollar index initially firmed after the retail sales data, but then trended lower and was last down 0.106 per cent at 93.941. The greenback was down 0.19 per cent for the week, after having appreciated for the previous five weeks, and hitting a one-year high of 94.563 on Tuesday.

The big run-up in dollar strength, based on expectations that the US Federal Reserve may begin hiking rates sooner than had been anticipated, may have been overblown, and the dollar is now consolidating, said Marc Chandler, chief market strategist at Bannockburn Global Forex.

"Next week will help clarify whether we are consolidating, and whether the consolidation is just like a breath that refreshes or is a prelude for a correction," he said.

The greenback had rallied against its major peers since early September on expectations the US central bank would tighten monetary policy more quickly than previously expected amid an improving economy and surging energy prices.