The Dollar Takes A Breather

 | Jul 12, 2013 04:02AM ET

The U.S. dollar took a breather on Friday after tumbling in the previous session from recent highs as fading expectations of an imminent reduction in the U.S. Federal Reserve's stimulus gave way to caution ahead of next week's Chinese growth data.

The dollar's movements have tracked U.S. Treasury yields, which had been in an uptrend since Fed chief Ben Bernanke said last month that the economy is improving enough for the Fed to begin scaling back its monthly $85 billion in asset purchases.

Benchmark U.S. yields hit a 23-month highs on Monday, but pulled back sharply after Bernanke said on Wednesday that a highly accommodative monetary policy was needed for the foreseeable future.

Median forecasts are that China's gross domestic product growth slowed modestly to a 7.5 percent pace in the second quarter, but many economists see risks to the downside after a recent spate of disappointing data.

Since most economist and market participants maintain their view that the Fed is likely to start tapering its stimulus before any other major central banks, interest rate expectations continued to favour the greenback over the longer term. But after this week's gyrations, investors could be more cautious about piling into dollar-long positions, making its uptrend less of a one-way bet.

Source: FinFX Daily Market Outlook