Forex
Dollar retreats ahead of Fed minutes; sterling gains despite CPI fall
© Reuters
Investing.com – The U.S. dollar edged lower in early European trade Wednesday, handing back recent gains ahead of the release of minutes from the last Federal Reserve meeting, while sterling gained despite U.K. inflation slowing sharply.
At 03:00 ET (07:00 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 102.962, not far removed from the 1½-month high of 103.46 seen earlier this week.
Dollar drifts lower ahead of Fed minutes
The dollar climbed higher Tuesday with the release of stronger than expected U.S. for July, indicating that American consumers have proven to be resilient despite inflation that has raised the price of household goods such as food and fuel.
That added more fuel to the debate on what the ‘s next move on interest rates will be, with most still expecting the U.S. central bank to pause on another rate hike when it next meets in September.
The next important clue into officials’ thinking on where interest rates should go comes with the of its July meeting later in the session, and traders appear to be keen to go into this release in a more neutral position, hence today’s dollar selling.
U.K. inflation drops sharply but remains elevated
rose 0.2% to 1.2730, even as U.K. inflation slowed in July to its lowest annual rate since February 2022. The fell to 6.8% from June’s 7.9%, moving further away from October’s 41-year high of 11.1%.
This will be welcomed by the , but this still leaves inflation more than three times higher than its 2% medium-term target, and thus more interest rate increases seem likely.
Additionally, data released Tuesday showed that basic wages in Britain rose 7.8% in June, a new record growth rate, adding to long-term inflation pressures even after 14 back-to-back increases in interest rates.
Euro edges higher ahead of GDP release
rose 0.2% to 1.0924, ahead of the release of second quarter for the eurozone. These are expected to show that gross domestic product climbed 0.3% on the quarter, a small improvement from the previous quarter’s flat growth.
However, is expected to drop 0.1% on the month in June, a , suggesting the region’s industrial base remains under pressure.
Elsewhere, rose 0.2% to 7.2964 after data showed that Chinese declined in July, raising more concerns over the country’s flailing property sector.
fell 0.1% to 145.38, with the yen helped by Tuesday’s strong Japanese numbers, but it remains not far from its recent nine-month low against the dollar.
The yen crossed the 145 level this week, which is expected to potentially attract intervention by the Japanese government to support the falling currency.
Forex
Asia FX rises as rate cut dents dollar; yen firms as BOJ holds course
Investing.com– Most Asian currencies firmed on Friday, while the dollar nursed losses after the Federal Reserve cut rates by a wide margin and kicked off an easing cycle.
The Japanese yen was among the better performers, strengthening after the Bank of Japan held interest rates and said it expected steady increases in inflation and economic growth.
The Chinese yuan also firmed after the People’s Bank of China kept its benchmark rates unchanged, ducking some expectations that it would cut rates to further support the economy.
Yen firm as BOJ holds rates, flags higher inflation
The Japanese yen firmed on Friday, with the pair falling 0.2% to 142.28 yen.
The BOJ in a unanimous decision, and said it expected inflation and economic growth to steadily increase.
While the central bank did not provide any overtly hawkish cues, its forecast of higher inflation tied into expectations that the BOJ will raise interest rates further. A slew of policymakers had signaled that rates will rise further in the coming months, especially as inflation picks up.
The BOJ decision and forecast came just hours after data showed inflation rose to a 10-month high in August, as increased wages pushed up private consumption.
While the yen was nursing weekly losses, it still remained close to its strongest levels for 2024, hit earlier in the week. Expectations of higher interest rates are likely to underpin the yen in the coming months.
Dollar weak after rate cut cheer offsets less dovish Fed signals
The and both fell slightly in Asian trade, extending overnight declines as markets looked to lower U.S. interest rates.
The Fed and announced the start of an easing cycle, which could see rates fall by as much as 125 bps by the year-end.
But Fed Chair Powell offered a less dovish outlook for medium-to-long term rates, stating that the central bank’s neutral rate will be much higher than seen in the past. His comments limited overall losses in the dollar, and had also seen the greenback appreciate in the immediate aftermath of the Fed decision on Wednesday.
Chinese yuan at 16-mth high as PBOC holds rates
The Chinese yuan firmed on Friday, with the pair falling 0.3% to its lowest level since May 2023.
Strength in the yuan came as the PBOC kept its benchmark steady, ducking some expectations that it would cut rates further to stimulate the economy.
The PBOC’s decision came even as a raft of recent economic indicators showed sustained weakness in China.
But media reports said the PBOC was instructing local banks to buy dollars and limit overall strength in the yuan, given that a stronger yuan also weighs on Chinese exports.
Broader Asian currencies firmed after the Fed’s decision. The Australian dollar’s pair rose 0.2% and was close to an eight-month high.
The South Korean won’s pair was an outlier, rising 0.2%, while the Singapore dollar’s pair fell 0.1%.
The Indian rupee’s pair fell 0.1%, pulling back further from record highs hit earlier this year.
Forex
Stay long on the yen amid rate hikes, improving growth- BCA
Investing.com– BCA Research said bets on a stronger Japanese yen were becoming more entrenched amid attractive valuations in local assets, the prospect of more interest rate hikes and an improving Japanese economy.
The yen saw a stellar recovery over the past two months, as a hawkish Bank of Japan, a weaker dollar and an unwinding carry trade pushed the currency to 2024 peaks. The pair had fallen as low as 139 yen in recent weeks.
BCA Research said in a recent note that the yen was a “high-conviction” buy, and that interest rates and global economic conditions were likely to favor the currency in the coming months.
BCA expects the BOJ to this week. But a “dovish hold” is an opportunity to accumulate more yen, while an unexpected rate hike is set to further boost the currency.
The research firm said the Japanese economy remained resilient, with increases in local wages helping spruce up private consumption.
With the Federal Reserve beginning an easing cycle, and with the BOJ likely to hike interest rates further, BCA sees interest rate differentials still moving in favor of the yen in the long term- more so if the global economy enters a recession.
BCA expects Japanese inflation to rise further in the coming months, tieing into the BOJ’s forecasts and giving the central bank more headroom to raise interest rates. The central bank hiked rates twice so far this year, ending years of easy monetary policy on expectations of an uptick in private consumption and inflation.
While the BOJ is expected to keep rates on hold in the near-term, especially with a looming leadership change in the Japanese government, it is still expected to keep raising rates by end-2024 and going into 2025. BCA said an interest rate hike will “not hurt Japan.”
On Japanese equities, however, BCA was less enthusiastic, rating them as “structurally neutral.” The firm cited yen strength as a headwind, and saw no immediate positive developments in ongoing corporate governance and structural reforms.
Forex
Dollar slips in choppy trading as traders grapple with Fed’s giant rate cut
(Adds missing “cuts” in first bullet, no other changes to text)
By Chibuike Oguh and Stefano Rebaudo
NEW YORK (Reuters) – The U.S. dollar slipped in choppy trading on Wednesday as markets grappled with the supersized 50 basis point interest rate cut, as well as the switch to an easing monetary policy stance delivered by the Federal Reserve.
Investor expectations had largely shifted towards a dovish outcome in the days leading up to the Fed’s move on Wednesday, with money markets pricing in around a 65% chance of a 50 basis point (bp) cut. But economists polled by Reuters were leaning towards a 25 bp cut.
“The interesting thing is the half point cut, which was pretty much unexpected or at least only half and half yesterday, has not really given the dollar extra damage – which is quite surprising,” said Joseph Trevisani, senior analyst at FXStreet in New York.
The , which measures the greenback against a basket of six peers, was down 0.38% to 100.64 after reversing gains made in early trading. It slid to its lowest in more than a year of 100.21 in the previous session.
The euro strengthened 0.4% to $1.1163. Against the yen, the dollar was 0.33% higher at 142.73 as markets anticipate that the Bank of Japan will leave interest rates unchanged on Friday.
The dollar weakened 0.08% to 0.847 against the Swiss franc and dropped 0.34% to 7.070 versus the offshore .
“What it’s really doing I think is giving permission, if you will, for the other central banks around the world, some of whom have started to cut rates already, to go further with their rate cuts,” Trevisani said.
Money markets priced in 72 bps of additional rate cuts in 2024 and 192 bps by September 2025.
The U.S. Treasury yield curve, which measures the gap between yields on two- and and seen as an indicator of economic expectations, steepened and hit its highest since June 2022. It was last at a positive 13.4 basis points, indicating more upcoming rate cuts.
Initial claims for state unemployment benefits dropped unexpectedly to 12,000 last week, according to Labor Department data on Thursday, suggesting labor market growth.
Fed policymakers on Wednesday projected the benchmark interest rate would fall by another half of a percentage point by the end of this year, a full percentage point next year and half of a percentage point in 2026.
“The initial interpretation of the decision was that it was dovish and while it was basically even odds that it was going to happen, overall, on the surface, it’s still a dovish move,” said Eugene Epstein, head of trading & structured products North America at Moneycorp in Boston.
“Everything reversed basically by the end of the day, so you can make the argument as a bit of buy the rumour, sell the fact. A lot of dovishness was already priced in.”
The pound hit its highest since March 2022 versus the dollar after the Bank of England’s Monetary Policy Committee (MPC) voted 8-1 to keep rates on hold. Sterling was up 0.5% against the greenback at $1.3278 after reaching as high as $1.3314.
The Australian and New Zealand dollars drew support from domestic data surprises. Australian employment exceeded forecasts for a third straight month in August.
The was up 0.77% to $0.6815.
The , meanwhile, traded 0.58% higher at $0.6244, after data showed the New Zealand economy contracted by 0.2% in the second quarter.
Currency bid prices at 19
September 07:17 p.m. GMT
Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid
Dollar index 100.62 101.02 -0.39% -0.74% 101.47 100.51
Euro/Dollar 1.1162 1.1118 0.4% 1.13% $1.1179 $1.1069
Dollar/Yen 142.61 142.3 0.22% 1.11% 143.875 141.885
Euro/Yen 1.1162 158.18 0.64% 2.29% 159.96 157.79
Dollar/Swiss 0.8469 0.8463 0.06% 0.62% 0.8515 0.845
Sterling/Dollar 1.3276 1.3214 0.51% 4.37% $1.3314 $1.3155
Dollar/Canadian 1.3559 1.3606 -0.34% 2.29% 1.3648 1.3534
Aussie/Dollar 0.6812 0.6764 0.73% -0.07% $0.6839 $0.6738
Euro/Swiss 0.945 0.9408 0.47% 1.79% 0.9465 0.9406
Euro/Sterling 0.8406 0.8414 -0.1% -3.02% 0.8423 0.8392
NZ Dollar/Dollar 0.6243 0.6208 0.65% -1.12% $0.6269 0.6183
Dollar/Norway 10.4931 10.5877 -0.89% 3.53% 10.6504 10.4394
Euro/Norway 11.7134 11.7726 -0.5% 4.36% 11.7929 11.6517
Dollar/Sweden 10.1611 10.2057 -0.44% 0.93% 10.2535 10.1143
Euro/Sweden 11.3423 11.3478 -0.05% 1.95% 11.3597 11.2923
(This story has been refiled to add the missing word ‘cuts’ in the first bullet)
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