Dollar recovers from two-week lows in holiday-thinned market

Reuters: The dollar recovered from a two-week low against a basket of six major currencies on Monday, though trade was thin with many markets closed for the New Year holiday. 

The greenback had soared to 14-year highs in December, boosted by market expectations that the U.S. Federal Reserve will hike rates as many as three times this year, and that President Elect Donald Trump will stoke growth and inflation with a program of fiscal expansion.

The dollar finished the year with an almost 4% annual rise, the fourth consecutive year of gains

But the index that measures the currency against six major rivals lost more than 1% during the last three days of last week, its weakness exacerbated on Friday during a flash surge for the euro in low volumes of trading in Asia. 

The single currency jumped two full cents to as high as $ 1.07, before quickly retreating, prompting analysts to draw parallels with a “flash crash” in October that briefly knocked almost 10% off the value of Britain’s pound.

On Monday the euro fell 0.4% to $ 1.0513 despite strong manufacturing data for the currency bloc, while the dollar index climbed to 102.68, close to the 14-year peak of 103.65 it touched on 30 December.

“In the last days of 2016 we saw the dollar retreat somewhat and there might be some sense of a correction from Europe this morning. I don’t see any fundamental drivers for the moves,” said Commerzbank Currency Strategist Esther Reichelt in Frankfurt.Data released on Friday showed speculators once again taking a bullish stance on the dollar, increasing their bets in the week up to last Tuesday after cutting their long positions for the first time since October in the previous week. 

The Swedish crown rose half to a 3-1/2-month high of 9.5285 crowns per euro after the purchasing managers’ index for the manufacturing sector rose to 60.1 points in December, up from 57.3 the previous month.