Forex
Dollar index falls as traders weigh Fed rate path
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Investing.com – The dollar dipped in European trade on Thursday, as markets remained on edge before key U.S. labor data, while the yen appreciated as Bank of Japan Governor Kazuo Ueda offered more cues on a potential pivot away from the central bank’s ultra-dovish stance.
At 06:42 ET (11:42 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 103.94.
“The underlying dollar story […] will be determined, by tomorrow’s US jobs report and next week’s [Federal Open Market Committee] meeting,” analysts at ING said in a note.
While the Fed is widely projected to keep interest rates on hold in December, markets have been unsure when the U.S. central bank plans to begin trimming borrowing costs. The uncertainty has aided the dollar, even as data pointed to more cooling in the labor market.
report due on Friday is expected to provide definitive clues about the jobs picture in the world’s largest economy, and will likely factor into the trajectory of the dollar for the remainder of the year.
Yen in focus in Asia
The was the best performer in Asia for the day, strengthening by 1.6% against the greenback after Ueda flagged more challenges for the BOJ in the coming months, and also spoke about options the bank has when considering a move away from negative interest rates.
His comments reinforced expectations that the BOJ will wind down its ultra-dovish, stimulus-heavy policies in the coming year. But the unclear timing of the pivot kept traders wary.
Gains in the yen were still held back by Ueda stressing the need for loose policy in the near-term, especially amid signs that the Japanese economy was cooling further.
Yuan flat after mixed trade data, FX intervention eyed
The was steady in Asian trade on Thursday after data showed a bigger-than-expected improvement in China’s through November. Chinese rose for the first time in six months, albeit marginally.
But an unexpected drop in fueled concerns over easing domestic demand, especially as economic activity in the country remained languid. A string of readings for November, released earlier this month, exacerbated worries over sustained weakness in China’s economy.
Traders were also watching for any more currency market intervention by the Chinese government, after several state banks were seen selling dollars for yuan on the open market.
Swiss franc surges versus euro
The inched only marginally higher against the dollar and slumped to its lowest level since January 2015, as markets eyed the potential for early rate cuts by the European Central Bank next year following a string of weak economic data.
Recent figures have suggested that the eurozone economy may be heading into a recession in the final quarter of this year, after it contracted by 0.1% in the prior three month period.
On Thursday, numbers from Germany’s federal statistics office showed that industrial production in Europe’s largest economy dropped for the fifth consecutive month in October. Factory orders in the country also contracted by 3.7% in October, reversing a gain of 0.7% in September, according to separate data earlier this week.
Across the eurozone, retail sales inched up by 0.1% in October, below economists’ estimates for an uptick of 0.2%, hinting at a soft consumer spending environment heading into the key holiday shopping season.
A possible slowdown, coupled with inflation across the eurozone falling more quickly than most anticipated, has led many observers to suspect that the European Central Bank could deliver its first rate cut by March.
Ambar Warrick contributed to this report.
Investing.com – The US dollar rose in thin holiday-impacted trade Tuesday, retaining recent strength as traders prepared for fewer Federal Reserve rate cuts in 2025.
At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 107.905, near the recently hit two-year high.
Dollar remains in demand
The dollar has been in demand since the Federal Reserve outlined a hawkish outlook for its interest rates after its last policy meeting of the year last week, projecting just two 25 bp rate cuts in 2025.
In fact, markets are now pricing in just about 35 basis points of easing for 2025, which has in turn sent US Treasury yields surging, boosting the dollar.
The two-year Treasury yield last stood at 4.34%, while the benchmark 10-year yield steadied near a seven-month high at 4.59%.
“We think this hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year,” said analysts at ING,in a note.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Euro near to two-year low
In Europe, fell 0.1% to 1.0396, near a two-year low, with the set to cut interest rates more rapidly than its US rival as the eurozone struggles to record any growth.
The ECB lowered its key rate earlier this month for the fourth time this year, and President Christine Lagarde said earlier this week that the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“If the incoming data continue to confirm our baseline, the direction of travel is clear and we expect to lower interest rates further,” Lagarde said in a speech in Vilnius.
Inflation in the eurozone was 2.3% last month and the ECB expects it to settle at its 2% target next year.
traded largely flat at 1.2531, with sterling showing signs of weakness after data showed that Britain’s economy failed to grow in the third quarter, and with Bank of England policymakers voting 6-3 to keep interest rates on hold last week, a more dovish split than expected.
Bank of Japan stance in focus
In Asia, fell 0.1% to 157.03, after rising as high as 158 yen in recent sessions, after the signaled that it will take its time to consider more interest rate hikes.
edged 0.1% higher to 7.3021, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
Investing.com– Most Asian currencies moved in a tight range on Tuesday, while the dollar extended overnight gains as traders positioned for a slower pace of interest rate cuts in the coming year.
Trading volumes were muted before the Christmas break, while most regional currencies were nursing steep losses against the greenback for the year.
Asian currencies weakened sharply last week after the Federal Reserve effectively halved its outlook for rate cuts in 2025, citing concerns over sticky U.S. inflation.
Dollar near 2-year high on hawkish rate outlook
The and both rose about 0.1% in Asian trade, extending overnight gains and coming back in sight of a two-year high hit last week.
While the greenback did see some weakness after data read lower than expected for November, this was largely offset by traders dialing back expectations for interest rate cuts in 2025.
The Fed signaled only two rate cuts in the coming year, less than prior forecasts of four.
Higher U.S. rates diminish the appeal of risk-driven Asian markets, limiting the amount of capital flowing into the region and pressuring regional markets.
Asia FX pressured by sticky US rate outlook
Most Asian currencies weakened in recent sessions on the prospect of slower rate cuts in the U.S., while uncertainty over local monetary policy and slowing economic growth also weighed.
The Japanese yen’s pair fell 0.1% on Tuesday after rising as high as 158 yen in recent sessions, after the Bank of Japan signaled that it will take its time to consider more interest rate hikes.
The Australian dollar’s pair fell 0.2% after the minutes of the Reserve Bank’s December meeting showed policymakers saw an eventual easing in monetary policy, citing some progress in bringing down inflation. But they still flagged potential upside risks for inflation.
The Chinese yuan’s pair rose 0.1% and remained close to a one-year high, as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
The Singapore dollar’s pair rose 0.1%, while the Indian rupee’s pair rose 0.1% after hitting record highs above 85 rupees.
Investing.com — The dollar has surged past its post-2022 range, buoyed by U.S. economic exceptionalism, a widening interest rate gap, and elevated tariffs, setting the stage for further gains next year.
“Our base case is that the dollar will make some further headway next year as the US continues to outperform, the interest rate gap between the US and other G10 economies widens a little further, and the Trump administration brings in higher US tariffs,” Capital Economics said in a recent note.
The bullish outlook on the greenback comes in the wake of the dollar breaking above its post-2022 trading range, reflecting renewed confidence among investors driven by robust U.S. economic data and policy expectations.
A key risk to the upside call on the dollar is a potential economic rebound in the rest of the world, similar to what occurred in 2016, Capital Economics noted.
Following the 2016 U.S. election, economic activity in the rest of the world rebounded, while Trump’s tax cuts didn’t materialize until the end of 2017, and the Fed took a more dovish path than discounted, resulting in a 10% drop in the DXY on the year, which was its “worst calendar year performance in the past two decades,” it added.
While expectations for a recovery in Europe and Asia seem far off, a positive surprise for global growth “should be ruled out”, Capital Economics said.
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