Forex
Dollar slips as Fed pause eyed in busy c.bank week
The dollar edged lower on Monday as traders stayed on guard ahead of policy decisions this week from several central banks, including the Federal Reserve, who are expected to keep interest rates on hold for the first time since January 2022.
Monetary policy meetings of the Fed, the European Central Bank (ECB) and the Bank of Japan (BOJ) will set the tone for the week as markets seek clues from policymakers on the future path of interest rates.
U.S. May inflation data is also out on Tuesday as the Fed kicks off its two-day meeting.
“FX markets should be subdued today because of the important meetings from the Fed and ECB on Wednesday and Thursday,” said Niels Christensen, chief analyst at Nordea.
Money markets are leaning towards a pause from the Fed when it announces its interest rate decision on Wednesday, according to the CME FedWatch tool, expectations that sent world stocks surging to a 13-month high on Friday as risk sentiment improved.
Conversely, a clear majority of economists polled by Reuters expect the ECB to hike its key interest rate by 25 basis points this week and again in July, before pausing for the rest of the year as inflation remains sticky.
“We are pretty much with consensus, expecting the Fed to stay put this week and a 25 basis point hike from the ECB,” Nordea’s Christensen said.
“When we get through the summer, however, the market would be very focused on when the Fed will start cutting rates and that could leave the dollar a little bit vulnerable going forward,” Christensen added.
The U.S. dollar index clocked a loss of nearly 0.5% last week, its worst weekly drop since mid-April, and was last down 0.1% at 103.39.
The euro rose 0.2% to $1.0772 in early London trade, having risen 0.4% last week, its first weekly gain in roughly a month.
Elsewhere, the Japanese yen (JPY=EB) slipped to 139.49 per U.S. dollar, before the BOJ, who are expected to maintain ultra-loose monetary policy and a forecast for a moderate economic recovery, as robust corporate and household spending cushion the blow from slowing overseas demand, sources told Reuters.
“Our economists have been expecting the BoJ to keep policy unchanged next week, before most likely tweaking YCC in July alongside an upgrade to the Bank’s inflation outlook,” Goldman Sachs analysts said.
“If that proves correct, we think tactical JPY weakness can extend versus USD and on crosses, particularly given our view that we should continue to be in a backdrop of higher US rates and supportive risk sentiment.”
The Reserve Bank of New Zealand last month signalled it was done tightening after raising rates to the highest in more than 14 years at 5.5%, ending its most aggressive hiking cycle since 1999. That sent the kiwi tumbling 2.7% in May.
The kiwi was last 0.1% higher at $0.6135, not too far from an over two-week high of $0.6138 hit on Friday, sterling rose 0.1% and the Aussie increased 0.3% to $0.6763, with a holiday in most of Australia making for thinned trade.
China’s offshore yuan extended losses to trade at its lowest level since November last year as recent soft data has raised expectations for monetary easing from the People’s Bank of China this year.
The British pound continued its historical trend of starting the year on a weak note, marking a seventh consecutive year of losses on the first trading day after New Year’s Day.
Deutsche Bank (ETR:) analysts noted that the pound fell over one percent today, contributing to a long-term pattern where sterling has only posted three positive returns on the first trading day of the past twenty years.
The bank’s analysis suggested that the pound’s performance is not isolated, as the Euro against the U.S. dollar () has shown a similar pattern, though slightly less pronounced. The movements in the Cable, the term used for the currency pair, often align with the repricing of relative interest rates at the start of the year.
However, today’s interest rate movements were minimal, despite a downward revision in the UK’s manufacturing PMI and more favorable unemployment claims data from the U.S.
Deutsche Bank attributed the additional underperformance of the pound to a “beta of the technical breaks” from last year, referencing the fall of the Euro to last year’s lows and the decline of the pound to multi-month lows.
The technical analysis suggests that these breaks in key support levels have contributed to the downward pressure on sterling.
Looking ahead, Deutsche Bank found no strong pattern that would indicate whether the initial losses of the pound on the first trading day would reverse or continue in the week following.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Investing.com – The US dollar was trading higher on Thursday, the first day of 2025 trading, on hopes that U.S. growth will beat peers, a more hawkish Fed stance and expectations for the incoming Donald Trump administration.
At 12.30 ET (5:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.8% higher to 109.170.
Dollar to remain in demand in 2025
The index rose 7% in 2024 as traders drastically cut back Fed rate-cut expectations in the wake of the projections of the policymakers after the December policy-setting meeting.
The US central bank projected just two 25 bp rate cuts in 2025 at its last policy meeting of the year, a sharp reduction from the four cuts it had indicated in September.
In fact, markets are currently only pricing in 42 bps of cuts from the US central bank in 2025, with the return of Donald Trump to the White House adding a degree of uncertainty given his policies of looser regulation, tax cuts, tariff hikes and tighter immigration are seen as both pro-growth and inflationary.
Focus turns to the release later in the session of weekly numbers as well as the December number, for clues towards the strength of the US economy.
In Europe, traded 0.9% lower to 1.0258, following the more than 6% drop in 2024.
Data released earlier Thursday showed that manufacturing activity in the eurozone declining at a faster rate at the end of the year, offering scant signals of an imminent recovery.
HCOB’s final , compiled by S&P Global, dipped to 45.1 in December, with the downturn broad-based as the bloc’s three largest economies – Germany, France and Italy – were stuck in an industrial recession.
Traders expected more interest rate cuts from the European Central Bank in 2025, with markets pricing in 113 basis points of easing, much more than the Federal Reserve.
This divergence in Fed & ECB policy “will push the euro to parity vs the dollar in the course of 2025,” said analysts at ABN Amro, in a note.
traded 1.2% lower to 1.2366, adding to the fall of 1.7% last year, but was nevertheless the best-performing G10 currency versus the dollar.
UK rose in December, according to mortgage lender Nationwide, jumping by 0.7% in monthly terms during December, following a 1.2% increase in November.
The resilience of the UK housing market has surprised many given indications of weakening activity across the wider economy, with prices ending the year 4.7% higher than their level of December 2023, up from 3.7% in November – the highest annual growth rate since late 2022.
The held interest rates unchanged last month after consumer prices rose above target, and this central bank is likely to remain more cautious than its eurozone counterpart in 2025.
Slowing Chinese manufacturing growth
In Asia, rose 0.6% to 7.3435, climbing to its highest level in over a year after data showed that the country’s manufacturing sector grew less than expected in December.
The reading came just days after government PMI data also showed weaker-than-expected growth in the manufacturing sector.
The prints ramped up concerns over a slowing economic recovery in China, with recent stimulus measures having provided only limited support.
traded 0.35% higher to 157.79, amid a mostly dovish outlook for 2025 from the Bank of Japan.
Investing.com– Most Asian currencies moved in a flat-to-low range on Friday, pressured by strength in the dollar as traders positioned for a slower pace of interest rate cuts by the Federal Reserve in 2025.
Regional trading volumes remained slim on account of the new year holidays, with Japanese markets remaining closed until next week.
The Chinese yuan was among the worst performers in Asia, hitting its weakest level in nearly 16 months as a Financial Times report said the People’s Bank of China will cut interest rates further in 2025.
The yuan, along with its regional peers, was also nursing steep losses in 2024, as the dollar benefited from a hawkish Fed and the prospect of protectionist policies under incoming President Donald Trump.
Dollar at 2-yr high as rate cut bets ease
The and fell 0.1% in Asian trade after racing to a fresh two-year high on Thursday.
The greenback’s latest round of gains came after weekly data read stronger than expected, indicating that the labor market remained strong. A strong labor market gives the Fed more headroom in considering future monetary easing.
The central bank signaled during its December meeting that it will cut interest rates at a substantially slower pace in 2025, citing concerns over sticky inflation.
Resilience in the U.S. economy also gives the Fed less impetus to cut rates, although the Atlanta Fed’s was revised lower for the fourth quarter on Thursday.
Chinese yuan weakens as PBOC flags more rate cuts
The Chinese yuan was among the worst performers in Asia, with the pair rising nearly 0.4% to 7.3275 yuan- its highest level since September 2023.
The FT reported that the PBOC will cut interest rates further in 2025, as the central bank pivots to a more conventional monetary policy structure under a singular benchmark interest rate.
The monetary policy reform comes as a slew of liquidity measures largely failed to stimulate China’s economy over the past two years. This is expected to elicit more monetary easing by the PBOC, which bodes poorly for the yuan.
The yuan was already nursing losses for the week, as purchasing managers index data released earlier showed slowing growth in China’s manufacturing sector.
Broader Asian currencies moved in a tight range, but were nursing steep losses in recent months as traders positioned for a slower pace of U.S. rate cuts in 2025.
The Japanese yen’s pair fell 0.1% after hitting an over five-month high in late-December.
The Australian dollar’s pair rose 0.2%, while the South Korean won’s pair fell 0.2% amid repeated assurances of financial stability from the government.
The Indian rupee’s pair steadied at 85.8 rupees after hitting a record high above 86 rupees earlier this week.
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