The dollar rose towards a 16-month high on Friday after the U.S. Federal Reserve kept interest rates steady and reaffirmed its monetary tightening stance, cueing up investors for a rate hike in December.
“We’re wary of selling the dollar too soon, because the Fed is still hiking rates into a tightening labor market and trade tensions haven’t gone away,” said Kit Juckes, chief FX Strategist at Societe Generale.
The Fed is widely expected to raise interest rates in December, which would be its fourth hike this year.
Renewed strength in the dollar – which tends to appreciate from trade war tensions by acting as a safe haven – is pushing the Chinese yuan towards 7 per dollar CNH=D3 and has seen the euro slip towards $1.13.
In foreign exchange markets, investor focus is shifting back to the divergence between the monetary policies of the United States and other major economies.
On Friday, though, the yen reversed course to trade up 0.2 percent at 111.86.
The dollar index .DXY, a gauge of its performance against six major peers, traded at a one-week high at 96.89, not far from a 16-month high of 97.2 brushed on Oct 31.
The euro EUR= traded at $1.1343, losing 0.2 percent after falling sharply on Thursday.
The European Commission forecast that the Italian economy would grow more slowly than Rome thinks in the next two years, leading to much bigger budget economy economy deficits than assumed by the government.
A standoff between the EU and Rome over the budget deficit and concerns over the bloc’s slowing economic growth have dragged on the euro, which has fallen 4.2 percent versus the dollar over the last six months.
The pound GBP=D3 changed hands at $1.3015, down 0.4 percent.