NEW YORK (Reuters) - The dollar rose on Friday for its strongest week against a basket of currencies in nearly 15 months as some traders piled into the greenback in a week of tremendous swings felt in stock and bond markets around the world.
The U.S. currency recovered further from a three-year low set two weeks ago. Some traders have bought it to close out their bets on its weakness, while others favored the dollar in a safe-haven move over higher-returning but riskier currencies, analysts said.
“Overall, it’s just a highly volatile environment where the idiosyncratic things that drive (the market) - fundamentals, economic data – are taking second stage … Everything is becoming much more correlated in a very volatile environment,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
This week’s dramatic moves — in equities with the Dow falling over 1,000 points on Thursday and in bonds with 10-year yield rising to a four-year peak earlier this week — were stoked by concerns about signs of inflation amid an improving global backdrop and speculation whether the Federal Reserve and other major central banks would act quicker to raise interest rates.
Equity and bond market volatility .VIX has surged this week. While foreign exchange markets EUR1MO= JPY1MO= have been calmer, the turbulence was enough to upend some popular trades, analysts said.
Betting on the dollar weakening against the euro has been one of them, with an expanding euro zone economy stoking expectations the European Central Bank will shrink its balance sheet sooner than expected.
The single currency was last down 0.09 percent at $1.2234, marking a 1.8 percent drop this week which would be its steepest weekly decline since November 2016, Reuters data showed.
The greenback stabilized versus safe-haven currencies after Thursday’s decline.
Against a basket of six major currencies, the greenback was up 0.22 percent at 90.427. On the week, the dollar index .DXY gained 1.41 percent for its best week in almost 15 months.
The dollar's advance was supported by some stabilization in U.S. stock prices, a day after heavy selling sank the Dow .DXY and S&P 500 .SPX into correction territory.
The bond market also calmed from its wild moves earlier this week. Benchmark 10-year Treasury yields US10YT=RR were 1.4 basis point lower on the day at 2.835 percent, which was below a four-year peak of 2.885 percent on Monday.
The dollar also received support after Congress and U.S. President Donald Trump approved a federal budget plan that ended an overnight federal shutdown.
Additional reporting by Tommy Wilkes in London; Editing by Meredith Mazzilli and Chizu Nomiyama