The dollar extended gains against the other major currencies on Monday, pulling away from nine-month lows, but the greenback’s upside was expected to stay limited amid expectations for tighter monetary policy by major central banks.
The euro dropped against the dollar 0.51% to 1.1369, off Friday’s 13-month peak of 1.1448, while the sterling declined 0.47% to 1.2967, pulling away from last week’s six-week high of 1.3032.
The dollar index against a group of six major currencies was 0.50% higher at 95.86, crawling off a nine-month trough of 95.470 plumbed on Friday.
In last week’s comments, the heads of the European Central Bank, the Bank of England and the Bank of Canada embraced a more aggressive view on monetary policy, indicating that they were getting ready to join the Federal Reserve in policy tightening.
Aggressive signals from foreign central banks contrasted with doubts over whether the Fed will be able to carry out hike rates again this year given a recent batch of weak U.S. economic data and growing skepticism that the Trump administration will be able to deliver on its pro-growth agenda.
Elsewhere, the greenback rallied against the yen and swiss franc 0.55% to 113.04 and 0.50% to trade at 0.9626, respectively. Meanwhile, the aussie dollar and kiwi were weaker against the dollar, down 0.44% to 0.7656 and 0.55% to 0.7292, respectively.
The yen briefly rose after Japanese Prime Minister Shinzo Abe’s Liberal Democratic Party suffered an historic defeat in an election in Tokyo on Sunday, in a vote that could be a harbinger for national elections.
“The Tokyo election won’t have a strong market impact, in my view, as there are no opposition parties in Japan that can immediately replace the (ruling) LDP,” said Yukio Ishizuki, a senior currency strategist.
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