By Saumya Vaishampayan, MarketWatch
NEW YORK (MarketWatch) -- The dollar rebounded Friday, but posted weekly losses against most major rivals after the Fed signaled this week it was likely to keep interest rates low for a while.
The ICE dollar index (DXY), a measure of the greenback's strength against six other currencies, rose to 80.407 from 80.327 late Thursday. For the week, the index fell nearly 0.3%. The WSJ Dollar Index , which pits the dollar against a wider basket of rivals, inched up to 73.12 from 73.05.
Fed Chairwoman Janet Yellen on Wednesday dismissed data showing higher-than-expected consumer-price inflation as "noisy," emphasizing that there is no "mechanical formula" for interest-rate hikes. Her remarks, which came after the central bank decided to cut its monthly bond purchases by another $10 billion, suggested that rates could remain at subdued levels until the middle of next year. Higher interest rates are likely to bolster the U.S. dollar because more foreign investors will be compelled to buy greenbacks in order to obtain higher-yielding U.S. assets.
"Yellen stuck to a very well-known script," said Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. He added that the Fed hasn't done anything to discourage people from placing carry trades. A carry trade is the practice of borrowing lower-yielding currencies to fund bets in higher yielding currencies and such trades tend to benefit in periods of low volatility.
Among G10 currencies, the New Zealand dollar (NZDUSD) stands to benefit as it has the highest interest rates in the space, said Franulovich. The kiwi dollar gained 0.3% this week against the greenback.
Emerging-market currencies with higher interest rates that stand to lure investors include the Turkish lira and South African rand, he added.
The pound (GBPUSD) fell to $1.7007 from $1.7038 late Thursday. For the week, the pound rose 0.24% against the dollar, supported by the diverging outlook for monetary policy. Bank of England Gov. Mark Carney said last week that U.K. rates could rise sooner than the markets expect.
In other action, the euro (EURUSD) fell to $1.3586 from $1.3604, but posted a 0.35% weekly gain. The dollar (USDJPY) rose to Yen102.13 from Yen101.96 late Thursday, on track to eke out a weekly gain of 0.1%.
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(END) Dow Jones Newswires
June 20, 2014 13:58 ET (17:58 GMT)
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