NEW YORK: The dollar rose to a five-month high against a basket of major currencies on Friday, helped by weakness in the euro as investors fretted about political uncertainty in Italy.

The dollar index has gained for five straight sessions and is on track for a 1.3 per cent weekly gain. It has risen 5pc since mid-February, with investors betting US interest rates will need to rise further to curb inflation.

Shaun Osborne, chief FX strategist at Scotiabank in Toronto, however, believes the dollar’s rally was more about extreme short positioning that needed to unwind.

“We continue to view dollar gains as a temporary issue reflecting excessive short positioning and concerns European growth momentum has slowed and may impair the ECB’s (European Central Bank) willingness to move away from quantitative easing later this year.”

The euro on Friday was headed for its fifth successive weekly decline versus the dollar, its first such fall since 2015. Europe’s single currency has fallen about seven cents in three weeks amid a sharp dollar rally and concerns about the outlook for Italy’s next government.

The far-right League and 5-Star Movement have agreed on a governing accord that would slash taxes and ramp up welfare spending. Ratings agency DBRS warned on Thursday that the economic proposals of the anti-establishment parties could threaten Italy’s sovereign credit rating.

In mid-morning trading, the euro fell to a five-month low of $1.1753. It has declined nearly 1.2pc versus the dollar this week and dropped against the Swiss franc, which typically attracts capital in times of uncertainty.

Published in Dawn, May 19th, 2018