Dollar Strengthens on U.S. Data; Sterling Overvalued

by on October 10, 2014 12:42 pm BST

Dollar rose against 14 of its 16 major peers and advanced for a second day, retracing its decline since minutes of the Federal Reserve’s most recent meeting showed policy makers are concerned the U.S. may be at risk from a worldwide slowdown.

The dollar lost 0.1 percent to 107.75 yen, extending its weekly decline to 1.8 percent, the first since the period ended Aug. 8. The U.S. currency strengthened 0.2 percent to $1.2669 per euro. The yen appreciated 0.2 percent to 136.53 per euro.

While U.K. Business Secretary Vince Cable complained the pound is overvalued, historical trends signal there will be few barriers to a currency powered by the developed world’s fastest-growing economy.

Sterling is set for its biggest weekly advance in more than three months against the dollar even after sliding today as a report showed construction unexpectedly contracted. The currency was buoyed this week as the International Monetary Fund said the economy would outpace all of its Group-of-Seven peers this year.

Speaking at his Liberal Democrat party’s annual conference in Glasgow, Scotland, on Oct. 5, Cable said sterling was too strong by as much as 15 percent on a trade-weighted basis and stifling the nation’s exports. A Deutsche Bank AG gauge showing sterling 19 percent below its high from 2007 before the outbreak of the global financial crisis sparked a selloff.

Sterling fell 0.4 percent to $1.6055 at 12:22 p.m. London time, pushing its two-day drop to 0.7 percent. It’s 0.5 percent stronger than its close on Oct. 3, set for the biggest advance since the five days through July 4.

The yen has strengthened this week as European Central Bank President Mario Draghi said there were indications the region’s economy is losing momentum, boosting demand for haven assets. Australia’s dollar fell for a second day after a government report showed home loans unexpectedly dropped in August. Norway’s krone slid as inflation accelerated less in the year through September than economists forecast.