Forex

Dollar reaches one month high as sentiment nervous , pound jumps on inflation data

Published

11 months ago

January 17, 2024

Dollar reaches one month high as sentiment nervous , pound jumps on inflation data

By Alun John and Brigid Riley

LONDON/TOKYO (Reuters) -The dollar hit a one-month high against a basket of its peers on Wednesday as the safe haven gained on the hit to sentiment from soft Chinese data and global rate setters arguing against imminent cuts, while sterling rose on higher British inflation.

The reached 103.58, its highest since December 13, extending gains after a 0.67% jump on Tuesday. It was last up a fraction on the day at 103.34.

That jump was driven in part by the Federal Reserve’s Christopher Waller saying that while the U.S. is “within striking distance” of the Fed’s 2% inflation goal, the Fed should not rush towards cuts in its benchmark interest rate until it is clear lower inflation will be sustained.

Market expectations of a rate cut in March have eased to around a 60% chance versus roughly a 75% view in the prior session, according to CME’s FedWatch Tool, and U.S. yields rose. [US/]

Also in the mix was data showing China’s economy grew 5.2% in 2023, slightly more than the official target, but it was a far shakier recovery than many analysts and investors expected.

Some December indicators released along with the GDP data were more grim, suggesting the country’s protracted property crisis is deepening.

That weighed on Asian and European shares, and the broader market mood. [MKTS/GLOB]

“A combination of weakish China data and a pushback by both ECB and Fed officials against early easing is weighing on risk sentiment and supporting the dollar,” said Chris Turner global head of markets at ING.

“It is hard to see that sentiment changing today should US December retail sales come in on the strong side.”

That data is due at 1330 GMT, and will give the latest indication of the health of the U.S. economy.

The dollar traded at its highest since early December against the rate-sensitive Japanese yen, last up 0.3% at 147.64, while the China-exposed Australian dollar hit its lowest since Dec. 12 and was last down 0.3% at $0.6564.

The dollar also hit a new two-month high of 7.2282 on China’s .

The euro was flat at $1.0819, steadying after a 0.7% drop on Tuesday after Waller’s remarks, as comments from European Central Bank policy makers also pushing back on imminent rate cuts in Europe helped put a floor under the euro.

Investor bets for ECB rate cuts are excessive and possibly self defeating because they could actually hold back monetary easing, Dutch central bank chief Klaas Knot told CNBC on Wednesday.

The pound was the exception in climbing on the dollar, up 0.43% to $1.2690, as a rise in British inflation data reinforced market expectations that the Bank of England will be slower to cut rates than other central banks.

The data “supports our view that whilst price growth is set to cool faster than the BoE had anticipated, continued economic resilience will prevent inflation from cooling at a pace that would justify rate cuts in the first half of this year,” said Nick Rees, FX Market Analyst at Monex Europe.

He said this would be supportive of the pound and “is likely to play out most clearly on crosses, particularly against the euro as is visible in the market response to today’s data.”

The euro dropped to a one-month low on the pound and was last down 0.4% at 85.73 pence. The pound was also up 0.8% against the Australian dollar at a four-month high., and up 0.7% on the yen.

Forex

Dollar retains strength; euro near two-year low

Published

2 hours ago

December 24, 2024

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.

Forex

Asia FX muted, dollar recovers as markets look to slower rate cuts

Published

2 hours ago

December 24, 2024

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.

Forex

Dollar breaks free, poised for more gains amid US economic outperformance

Published

2 hours ago

December 24, 2024

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.