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Dollar steadies ahead of 4Q GDP; euro awaits ECB meeting

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Dollar steadies ahead of 4Q GDP; euro awaits ECB meeting
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Investing.com – The U.S. dollar traded in a tight range in early European trade Thursday, while the euro edged higher ahead of a widely-watched European Central Bank policy meeting.

At 04:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded just lower at 103.017, still not far from the six-week high of 103.82 seen on Tuesday.

Dollar awaits fourth-quarter GDP

The dollar has stabilized Thursday, dropping back slightly from the highs seen earlier in the week as traders consolidate positions ahead of the Federal Reserve’s next week.

Traders have been scaling back expectations of early rate cuts from the Fed following pushback from central bankers and the release of data that has underscored the resiliency of the U.S. economy.

Markets are now pricing in roughly a 50-50 chance of a cut in March, down from over 80% a month ago.

There is more key data to digest before next week’s Fed meeting, starting with the first reading of fourth-quarter U.S. later in the session.

This is expected to show 2% annualized growth, a hefty drop from the 4.9% growth seen in the third quarter, but still indicating that the U.S. avoided a recession in 2023.

Euro steady ahead of ECB

In Europe, traded 0.1% higher at 1.0896, ahead of the latest meeting of the .

The central bank is virtually certain to keep interest rates at record highs, but there remains uncertainty over the future and when the officials will decide that they can start cutting rates in an attempt to boost growth in the bloc.

Markets had expected a cut as soon as April, but have been dialing back pricing over the past few weeks as policymakers have pushed back on this aggressive pricing.

With this in mind, President ‘s post-meeting news conference will be of particular interest.

“We would say that the ECB event risk … proves a mild upside risk to EUR/USD – but the carpet could be pulled from under the euro should President Lagarde somehow convey the message that the policy rate will be getting cut in the summer after all,” said analysts at ING, in a note.

traded just higher at 1.2728, with sterling traders searching for cues ahead of next week’s policy-setting meeting.

Yen hands back some gains

In Asia, rose 0.1% to 147.65, with the yen slipping slightly after sharp gains earlier this week. These came as Bank of Japan Governor offered more signals on a potential pivot away from negative interest rates – which were a key pain point for the yen over the past two years.

traded 0.2% higher to 7.1683, with the yuan slipping slightly after having received some support earlier in the week on hopes of improved Chinese economic prospects after the PBOC reduced banking reserve requirements.

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Forex

Dollar retains strength; euro near two-year low

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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. 

 

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

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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.

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Forex

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

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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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