Forex: Weekly review

On Monday the dollar gained against most of its major counterparts as stronger U.S. economic data reduced bets the Federal Reserve would add to monetary stimulus, bolstering demand for the currency. The 17-nation euro pared losses against the yen before European finance ministers meet in Brussels to review a second aid package for Greece.

On Tuesday the dollar gained against the euro and the yen as the Federal Reserve policy makers raised their assessment of the economy as the labor market gathers strength and refrained from more actions to lower borrowing costs. The Federal Open Market Committee, which met in Washington, kept the central bank’s benchmark interest rate target unchanged at zero to 0.25 percent, where it’s been since December 2008. The yen dropped earlier to the weakest level against the dollar in almost 11 months as the Bank of Japan plans to keep using monetary policy as a tool to tackle deflation.

On Wednesday the dollar strengthened to an 11- month high against the yen after the Federal Reserve raised its outlook for U.S. growth, reducing expectations the central bank will begin a third round of bond purchases. The yen fell for a second day versus the dollar as the extra yield received for holding Treasury two-year notes compared with Japanese debt increased to the most since July. The extra yield investors receive from holding two-year Treasuries instead of Japanese debt widened to 24 basis points, the most since July 28, increasing the attractiveness of dollar assets.

On Thursday the yen climbed from an 11-month low against the dollar as investors wagered that its largest four-day decline since November may have happened too quickly. The pound weakened for the first time in three days against the euro after Fitch Ratings said the U.K. risks losing its top investment grade. The U.K. currency fell against 11 of its 16 major counterparts after Fitch changed its rating outlook yesterday on Britain to negative, citing a weak recovery and high debt levels. The Swiss franc climbed from a seven-week low against the dollar as the Swiss National Bank predicted the economy will expand 1 percent this year, twice as much as its previous estimate.

On Friday the dollar weakened against most of its major peers after U.S. inflation data fueled speculation Federal Reserve policy makers will maintain economic stimulus. The U.S. currency fell against the 17-nation euro as a gauge of consumer prices excluding food and energy rose less than forecast.