Forex
King dollar seen vulnerable in 2024 if Fed pivots
© Reuters. FILE PHOTO: Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking/File Photo
By Saqib Iqbal Ahmed
NEW YORK (Reuters) – The Federal Reserve’s dovish December pivot has boosted the case for the weakening dollar to keep falling into 2024, though strength in the U.S. economy could limit the greenback’s decline.
After soaring to a two-decade high on the back of the Fed’s rate hikes in 2022, the U.S. currency has been largely range-bound this year on the back of resilient U.S. growth and the central bank’s vow to keep borrowing costs elevated.
Last week’s Fed meeting marked an unexpected shift, after Chairman Jerome Powell said the historic monetary policy tightening that brought rates to their highest level in decades was likely over, thanks to cooling inflation. Policymakers now project 75 basis points of cuts next year.
Falling rates are generally seen as a headwind for the dollar, making assets in the U.S. currency less attractive to yield-seeking investors. Though strategists had expected the dollar to weaken next year, a faster pace of rate cuts could accelerate the currency’s decline.
Still, betting on a weaker dollar has been a perilous undertaking in recent years, and some investors are wary of jumping the gun. A U.S. economy that continues to outperform its peers could be one factor presenting an obstacle for bearish investors.
The Fed’s aggressive monetary policy tightening, along with post-pandemic policies to boost U.S. growth, “fueled the notion of American exceptionalism and delivered the most powerful dollar rally since the 1980s,” said Kit Juckes, chief FX strategist at Societe Generale (OTC:).
With the Fed set to ease policy, “some of those gains should be reversed,” he said.
The dollar is on track for a 1% loss this year against a basket of its peers.
FADING STRENGTH?
Getting the dollar right is key for analysts and investors, given the U.S. currency’s central role in global finance.
For the U.S., a weak dollar would make exports more competitive abroad and boost the profits of multinationals by making it cheaper to convert their foreign profits into dollars. About a quarter of companies generate more than 50% of revenues outside the U.S., according to FactSet data.
An early December Reuters poll of 71 FX strategists showed expectations for the dollar to fall against G10 currencies in 2024, with the greater part of its decline coming in the second half of the year.
Whether they’re right may come down to how the U.S. economy performs compared to its global peers next year and the pace at which central banks adjust monetary policy.
So far, it’s been an uneven picture. In the eurozone, a downturn in business activity deepened in December, according to closely watched surveys that show the bloc’s economy is almost certainly in recession. Still, the European Central Bank has pushed back against rate cut expectations as it remains focused on fighting inflation. The euro is up 2.4% against the dollar this year.
The “growth slowdown is more entrenched in other economies,” said Thanos Bardas, senior portfolio manager at Neuberger Berman, who is bullish on the dollar over the next 12 months. “For the U.S. it will take a while for growth to slow down.”
Others, however, see areas of strength, particularly in Asian economies. Paresh Upadhyaya, director of fixed income and currency strategy at Amundi US, says he believes the market is “way too pessimistic” on the outlook for growth in China and India. Accelerating growth could boost the countries’ appetite for raw materials, benefiting commodity currencies such as the Australian, New Zealand and Canadian dollars.
China will step up policy adjustments to support an economic recovery in 2024, according to state media reports.
Jack McIntyre, portfolio manager at Brandywine Global in Philadelphia, is counting on U.S. growth slowing while Chinese growth picks up. He has been selling the dollar to fund the purchase of Asian currencies.
“The dollar’s bull run is very mature,” he said.
The International Monetary Fund in October forecast the U.S. economy would grow by 1.5% in 2024, compared to 1.2% for the eurozone and 4.2% for China.
Of course, the dollar’s trajectory could depend on how much Fed easing and falling inflation is already reflected in its price. Futures tied to the Fed’s policy rate show investors factoring in more than 140 basis points in cuts next year, nearly twice as much as Fed policymakers have penciled in.
“If inflation stalls and does not continue to decline that’s where the case grows for the Fed to hold off,” said Matt Weller, head of market research at StoneX. “That would certainly be a bullish development for the dollar.”
By Karen Brettell and Stefano Rebaudo
(Reuters) -The dollar rose on Friday and was heading for a weekly gain as investors evaluated the likely impact on the American economy of Tuesday’s election of Republican Donald Trump as U.S. president.
Analysts expect Trump’s policy proposals — including more trade tariffs, a clampdown on illegal immigration, lower taxes and business deregulation — will boost growth and inflation.
But in the near term there remains considerable uncertainty over what policies will actually be introduced.
“We don’t really know how much was campaign rhetoric, how much is a negotiating position, how much of it is speaking principle,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. “Part of the volatility we’re seeing in the dollar and in interest rates is that the market is trying to figure it out.”
Republicans also won control of the Senate and are leading the race for the House of Representatives, with some races still to be called.
The jumped to a four-month high of 105.44 on Wednesday, but has dipped since, partly due to profit-taking. It was up 0.58% on the day at 105.01 on Friday and on pace for a 0.68% weekly increase.
Data on Friday showed that U.S. consumer sentiment rose to a seven-month high in early November, in a survey taken before the election.
The next major U.S. economic release will be Wednesday’s consumer price data for October.
“We need more clarity about U.S. policies,” said Athanasios Vamvakidis, global head of forex strategy at Bank of America. “Until then, the greenback will be trading (on) data and expectations for the Fed easing path.”
On Thursday, the Federal Reserve cut rates by 25 basis points, which had been widely expected. Chair Jerome Powell said the U.S. central bank would not speculate on the impact of any policies by the incoming U.S. government.
Traders are pricing in 65% odds that the Fed will cut again by 25 basis points in December, down from 83% a week ago, according to the CME Group’s FedWatch Tool.
The euro dropped 0.85% to $1.0712 and was headed for a 1.12% decline for the week, which saw the collapse of Germany’s coalition government on Wednesday.
Against the Japanese currency, the greenback fell 0.13% to 152.73 yen.
The yen is expected to suffer as the interest rate differential with the United States widens, which could prompt Japan’s central bank to raise rates as soon as December to prevent the currency from sliding back toward three-decade lows.
weakened after Beijing unveiled a 10 trillion yuan ($1.4 trillion) debt package on Friday to ease local government financing strains and stabilize flagging economic growth.
“Markets may have been hoping for a larger-than-expected stimulus,” said Lynn Song, chief economist for Greater China at ING.
The was last down 0.69% at 7.2 per dollar.
The Australian dollar, often used as a liquid proxy for its Chinese counterpart, fell 1.53% to $0.6576.
was last up 1.45% at $77,068, after earlier reaching a record $77,303.97.
Trump is expected to enact a more favorable regulatory environment for the crypto industry.
Investing.com – The U.S. dollar steadied Friday, set to end a volatile week with small gains as traders digested the implications of a new Trump presidency as well as benign Federal Reserve.
At 04:30 ET (09:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded flat at 104.372.
The index is on track for a gain of just 0.2% this week, even after gaining 1.5% on Wednesday in the wake of Donald Trump’s election victory, when it recorded its biggest single-day gain since September 2022.
Dollar unwinds Trump gains
The dollar surged to a four-month high on Wednesday as traders positioned for a new Trump administration, with its tariff and immigration policies likely to prompt the Federal Reserve to reduce rates at a slower and shallower pace.
However, some of these gains have been unwound after the cut interest rates by 25 basis points on Thursday, and signaled the likelihood of further rate cuts ahead as inflation appeared on course to fall to the central bank’s 2% target.
“A large portion of the election move in the dollar has been unwound. That, to us, looks more like a positioning adjustment rather than a rethink of what a Trump presidency means for global markets,” said analysts at ING, in a note.
“Remember that markets got to Election Day broadly pricing in a Trump victory, and while the dollar spiked in reaction to the Republican clean sweep, there are perhaps some questions now on how far the dollar can rally near term given the focus is shifting back to the macroeconomic discussion.”
The US consumer price index for October is due next week, and this could influence market sentiment as the year comes to a close.
Euro weighed by German political crisis
In Europe, dropped 0.2% to 1.0785, with the common currency on course for a weekly loss of around 0.5%, weighed by a political crisis in Germany, the eurozone’s biggest economy.
German Chancellor Olaf Scholz on Wednesday sacked his finance minister, paving the way for a snap election after months of disagreements in his three-party coalition.
This political turmoil comes at a critical juncture for Europe’s biggest economy, with Trump’s election victory raising the possibility of a trade war with the region’s main trading partner.
“EUR/USD traded briefly above 1.080 yesterday on the back of the broad-based unwinding of post-election USD longs,” ING said. “This appears to be a positioning unwinding, and we doubt markets are reconsidering the negative implications of Trump’s expected policies on the eurozone.”
fell 0.2% to 1.2961, with sterling falling further from the psychologically important 1.30 level in the wake of the Bank of England’s latest interest rate cut.
The delivered its second rate cut since 2020 on Thursday, dropping by 25 basis points to 4.75% from 5%, but also indicated that the latest UK Budget could cause inflation to take a year longer to return sustainably to its 2% target.
“A December rate cut is looking rather unlikely following the budget, and markets are also pricing in a very small implied probability,” ING said. “At the same time, we don’t think the budget will significantly derail the BoE’s easing path next year, and we still expect faster cuts in the spring compared to market expectations.”
Yuan looks to NPC meeting
climbed 0.2% to 7.1555, with the yuan weakening slightly with the focus squarely on the NPC meeting, which concludes on Friday, for more cues on Beijing’s plans to roll out fiscal stimulus.
Analysts expect the government to approve at least 10 trillion yuan ($1.6 trillion) in fresh spending for the coming years. The NPC meeting comes after Beijing announced a slew of stimulus measures over the past month, but did not specify their timing or scale.
fell 0.4% to 152.39, with the yen gaining after Japanese ministers issued fresh verbal warnings over potential intervention in the currency market.
fell 0.5% to 0.6646, but was headed for an over 1% weekly gain.
Investing.com– Most Asian currencies steadied on Friday after clocking sharp gains in the prior session, while the dollar nursed some losses after the Federal Reserve cut interest rates as widely expected.
Regional currencies recouped a bulk of their weekly losses after the Fed’s move, with some even turning positive for the week. The dollar, on the other hand, tumbled from four-month highs, with some traders also locking in recent gains.
Focus was also on more cues on fiscal stimulus from China, as a meeting of the country’s Nation People’s Congress entered its final day.
Dollar nurses tumble from 4-mth high after Fed rate cut
The and both steadied in Asian trade, steadying from a sharp drop on Thursday after the Fed to a range of 4.50% to 4.75%.
The greenback had shot up to a four-month high earlier in the week after Donald Trump won the 2024 presidential election, with Trump’s policies potentially heralding stickier inflation in the long term.
The Fed said a change in U.S. leadership was unlikely to affect monetary policy in the near-term. Chair Jerome Powell signaled that the economy was in a good place, and that the bank was likely to ease policy further in the coming months.
Traders were seen pricing in a 76.5% chance the Fed will cut rates by 25 bps in December, and a 23.5% chance rates will remain unchanged, showed.
Chinese yuan fragile with NPC in focus
The Chinese yuan- which was among the worst hit by dollar strength this week- weakened slightly on Friday, with the pair rising 0.2%. The pair was also set to rise 0.4% this week.
Focus was squarely on the NPC meeting, which concludes on Friday, for more cues on Beijing’s plans to roll out fiscal stimulus.
Analysts expect the government to approve at least 10 trillion yuan ($1.6 trillion) in fresh spending for the coming years. The NPC meeting comes after Beijing announced a slew of stimulus measures over the past month, but did not specify their timing or scale.
Broader Asian currencies mostly weakened on Friday, but were sitting on strong gains from the prior session following the Federal Reserve’s interest rate cut.
The Japanese yen was an outlier, with the pair falling 0.2% and further away from three-month highs after Japanese ministers issued fresh verbal warnings over potential intervention in the currency market.
The Australian dollar’s pair fell 0.4%, but was headed for a nearly 2% weekly gain. The South Korean won’s pair rose 0.4%, while the Singapore dollar’s pair rose 0.1%.
The Indian rupee was a major laggard this week, with the pair surging to record highs above 84.4 rupees. The pair remained close to these highs on Friday.
Forex2 years agoForex Today: the dollar is gaining strength amid gloomy sentiment at the start of the Fed’s week
- Forex2 years ago
How is the Australian dollar doing today?
- Forex2 years ago
Dollar to pound sterling exchange rate today: Pound plummeted to its lowest since 1985
- Forex2 years ago
Unbiased review of Pocket Option broker
- Cryptocurrency2 years ago
What happened in the crypto market – current events today
- World2 years ago
Why are modern video games an art form?
- Commodities2 years ago
Copper continues to fall in price on expectations of lower demand in China
- Forex2 years ago
The dollar is down again against major world currencies
