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Dollar Edges Lower; Evergrande News Supports Risk Appetite

The dollar was modestly lower in early trading in Europe on Friday, losing ground against higher yielders in particular after good news out of China supported risk assets in general.

Local media reported that struggling real estate developer China Evergrande has found the money to pay interest on a dollar bond at the last minute before falling into formal default. It wasn’t clear how the money was raised and there is still no sign of a comprehensive restructuring of its $300 billion in liabilities, however.

By 3 AM ET (0700 GMT), the dollar index that tracks the greenback against a basket of advanced economy currencies was down 0.1% at 93.66, on course to end the week 0.3% lower.

The dollar’s decline this week has come despite a steady rise in bond yields, which normally tend to support it. The yield on the benchmark 10-year Treasury note has risen by 10 basis points in the course of the week to 1.67%, on fears that this year’s spike in inflation is likely to last longer than first thought.

Federal Reserve Chairman Jerome Powell is due to speak at 11 AM ET (1500 GMT).

The euro was up 0.1% at $1.1638, on course for a 0.3% rise for the week, while sterling was flat at $1.3790 after the Bank of England’s new chief economist, Huw Pill, was quoted as saying that the Bank would have a “live” debate over interest rates at its meeting in November, but adding that the debate was likely to be “finely balanced”. That was a little less conclusive than market expectations, which have now factored in a rise in the Bank’s key rate at that meeting.

Sterling was also capped by data showing another decline in retail sales in September, the fifth straight month they have fallen. While earlier declines have been seen as reflecting a shift in spending away from goods toward services as the economy reopened, the most recent data were also affected by weakening consumer sentiment as the government ended its labor market support schemes and the shortage of truck drivers led to widespread shortages of various products, notably fuel.

The day’s main data releases in Europe will be purchasing managers indices from consultancy IHSMarkit, while EU leaders continue their summit meeting in Brussels, having failed to make meaningful progress on resolving their short-term energy market problems on the first day of the meeting.

Elsewhere, the Turkish lira fell another 1.2% to a new record low in the wake of what the market saw as another highly politicized rate cut by a central bank that has lost its independence. The Central Bank of Russia, which has burnished its reputation this year with early and significant monetary tightening, is set to raise its key rate by another 50 basis points to 7.25% later. The ruble was steady after hitting a 17-month high against the dollar earlier in the week.

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