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Dollar Edges Higher as Policy Gap Widens; Evergrande Fears Continue to Bubble By

By Geoffrey Smith — The dollar nudged higher against both developed and emerging markets currencies on Friday, as a fresh wave of caution hit global markets in the wake of real estate group China Evergrande’s failure to pay all holders of its dollar bond on Thursday.

By 3:10 AM ET (0710 GMT), the which measures the greenback against a basket of currencies was up 0.2% at 93.190, with its biggest gains coming against commodity currencies such as the , and .

Reuters was informed by at least three bond holders that the bonds were still unpaid as of Friday morning in Hong Kong. There is a 30-day grace period for the company before it becomes officially in default. However, this news brought home the problems facing Chinese authorities trying to stem the spread of contagion through the local financial market.

The People’s Bank of China again intervened in the money market to keep conditions orderly, although the scale of its seven and 14-day repos, at only 71 billion yuan ($10.9 billion), was slightly lower than earlier in the week. The official rate of 6.4633 to the US dollar was flat.

Europe saw the euro maintain its low tone due to markets pricing in the growing policy gap between European Central Bank (Federal Reserve) and European Central Bank. Christine Lagarde, President of Christine Lagarde, said that this is not the beginning of a tightening cycle. The single currency was little changed from Thursday’s close at $1.1733, up over half a cent from the lows of Wednesday but still down by half a cent on the week.

Fed chair Jerome Powell (Vice-chair Richard Clarida) and Michelle Bowman, board member will all speak later at an event which begins at 10:00 AM ET. The economic data calendar is headed by business confidence surveys from Germany and Italy, which come a day after IHSMarkit’s flash purchasing managers index for September showed a sharper-than-expected slowdown in activity.

The sterling also failed to gain any momentum against the dollar. It remained flat at $1.3710 and gained 0.1% against euro.

There is a double-edged battle for the pound between food and energy shortage threats and rising inflation, which would lead to the Bank of England raising its interest rate. The Bank’s monetary policy committee made only a modest shift towards tightening its policy at Thursday’s meeting.

In emerging markets, the Turkish lira remained under pressure after the central bank’s surprise decision to cut interest its key rate by 1 percent on Thursday, despite having an inflation rate that’s currently running at over 20%. Dollar is currently up 2.5% against the Lira and 5.7% in the past month. This makes the Turkish currency one of the most volatile G20 currencies.

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Mike Robinson
Mike covers the financial, utilities and biotechnology sectors for Street Register. He has been writing about investment and personal finance topics for almost 12 years. Mike has an MBA in Finance from Wake Forest University.