Forex
Dollar lower ahead of key inflation data Friday
By Hannah Lang
NEW YORK (Reuters) -The dollar fell on Thursday after revised data showed that gross domestic product, the broadest measure of economic activity, grew at slower pace than previously expected in the first quarter.
The Commerce Department reported the U.S. economy grew at an 1.3% annualized rate from January through March, down from the advance estimate of 1.6% after downward revisions to consumer spending.
The downgrade of first-quarter growth followed recent softness in readings of retail sales and equipment spending, which had contributed to easing bets on Federal Reserve interest rate cuts.
“This is definitely something that the Fed was looking for. All of these figures coming in below expectations … is taking a bit of heat off of the Fed,” said Helen Given, FX trader at Monex USA.
A two-day, 15-basis point jump above 4.6% for long-term Treasury yields had helped push the dollar to a two-week high on Wednesday by boosting the attractiveness of U.S. debt.
The index tracking the U.S. currency against its major peers climbed to 105.18 overnight, the highest since May 14, but was last down 0.37% at 104.74.
The release of the Personal Consumption Expenditures price index – the Fed’s preferred measure of inflation – on Friday could provide further indications on how the central bank might proceed with interest rate cuts later this year.
That readout could “move the needle a little bit more than today’s GDP data,” said Eugene Epstein, head of structuring for North America at Moneycorp.
Expectations for Fed interest rate reductions this year have been pared back amid signs of sticky inflation, most recently with a surprise uptick in consumer sentiment in data on Tuesday.
The dollar was down 0.53% against the Japanese yen at 156.805 after hitting a one-month high of 157.72 the previous day.
Market players suspect Japan intervened to prop up its currency at the end of April and early May, which may be confirmed by data out on Friday.
“Japanese authorities intervened near this level on May 1, and the market now views 158 as a critical point for potential intervention,” said Charu Chanana, head of FX strategy at Saxo Bank.
The euro was up 0.3% at $1.083 after dropping 0.5% on Wednesday to touch a two-week low of $1.0789 overnight. Sterling rose 0.26% to $1.2734 after also falling 0.5% on Wednesday.
Price data for the euro zone is due on Friday, following a stronger-than-expected April inflation reading for Germany on Wednesday.
In cryptocurrencies, bitcoin last rose 2.28% to $68,940.33.
The People’s Bank of China (PBoC) responded to increasing demand for the US dollar by adjusting its cross-border macroprudential parameter.
The central bank’s decision to raise the parameter from 1.50 to 1.75 allows domestic corporations and financial institutions to engage in more cross-border borrowing.
The adjustment came as the foreign exchange settlement balance for banks’ clients showed a deficit of $10.5 billion, marking the first negative reading since July 2024. This deficit contrasts with the previous month’s figures. The rise in demand for the US dollar was particularly noticeable in service trade transactions.
Recent weeks have seen domestic importers actively purchasing US dollars through foreign exchange forwards. This move is a strategy to hedge against potential risks associated with tariffs, which has contributed to an upward push on forward points.
The PBoC’s policy change on January 13 reflects efforts to manage market expectations regarding foreign exchange rates.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
On Wednesday, Macquarie analysts provided insights into the potential future movements of the Canadian dollar (CAD) against the US dollar (USD).
They indicated that the fears of heavy-handed US import tariffs are unlikely to materialize immediately after the inauguration, suggesting that the USD’s rally against the EUR, CAD, and other currencies might not extend beyond the first quarter of the year.
The analysts highlighted that despite the initial threats of tariffs, Canada is expected to grow even closer to the United States in the coming years. This projection is based on several factors including Canada’s domestic politics, foreign policy, border and immigration policies, as well as trade and capital account flows, all of which demonstrate aligned interests with the US. The anticipated renegotiation of the United States-Mexico-Canada Agreement (USMCA) is expected to cement this relationship further.
According to Macquarie, this closer relationship between Canada and the US will lead to a much more stable exchange rate in the future. They predict that as a result of these developments, the USD/CAD pair will experience a downward drift, potentially reaching a mid-year target of 1.35.
The stability in the USD/CAD exchange rate is seen as a reflection of the ‘merger trend’ context, where the two economies continue to integrate and align, leading to less exchange rate fluctuation. Macquarie’s analysis projects a calmer period ahead for the currency pair, which has historically been influenced by trade policies and geopolitical factors.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Investing.com – The US dollar lifted slightly Thursday, but remained in a tight trading range ahead of a speech by President Donald Trump at the World Economic Forum.
At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher to 108.150, after starting the week with a drop of over 1%.
Dollar treads water
The dollar has largely treaded water over the last couple of days as traders await more clarity over President Donald Trump’s plans for tariffs, following the sharp fall on Monday as his first day in office brought a barrage of executive orders, but none on tariffs.
He has subsequently talked about levies of around 25% on Canada and Mexico and 10% on China from Feb. 1, as well as mentioning duties on European imports, but without concrete action.
Trump speaks later in the session at the World Economic Forum in Davos, Switzerland, and traders are eagerly awaiting any comments on this topic as well as for his position on major geopolitical and economic issues such as the Ukraine-Russia war and the economic rivalry with China.
“This week’s dollar correction has not gone too far. Despite the heavy one-way positioning of the dollar, investors lack clarity on the timing of Trump’s tariff threats, preventing them from reducing dollar holdings,” said analysts at ING, in a note.
Also causing traders to pause for breath is the spate of central bank policy decisions due over the next week, including the on Friday, ahead of the and the next week.
Euro lower ahead of ECB meeting
In Europe, slipped 0.1% lower to 1.0404, with the single currency weak ahead of next week’s ECB meeting, with an interest rate cut largely seen as a done deal.
“This week’s EUR/USD bounce has been pretty muted so far,” said ING. “There is no way investors can expect to hear an ‘all-clear’ signal on tariffs. And keeping trading partners off balance/guessing is a tactic that kept the dollar reasonably well bid during Trump’s last tariff regime in 2018-19.”
traded 0.1% lower to 1.2304, while rose 0.2% to 11.3035 ahead of a policy-setting meeting by the later in the session.
“Norges Bank is widely expected to keep rates on hold today,” ING said. “On the whole, the key variables monitored by NB have not clearly argued a rate cut should be pushed beyond March. Also, the risks to global growth related to Trump’s protectionism plans should encourage policymakers to allow some breathing room with a rate cut before the end of the first quarter.”
BOJ meeting to conclude Friday
In Asia, traded largely unchanged at 156.47, ahead of the Bank of Japan’s two-day policy meeting, which concludes on Friday.
The BoJ is widely expected to raise interest rates as recent inflation and wage data have been encouraging, and the central bank is likely to signal further interest rate hikes if the economy maintains its recovery
traded 0.2% higher to 7.2877, with the Chinese currency weaker on fears Trump will confirm US tariffs on Chinese imports, hitting the second largest economy in the world.
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