Forex
Dollar extends gains against yen with US economic strength in focus
By Laura Matthews
NEW YORK (Reuters) -The dollar rose to a seven-week high against the yen on Thursday, while the sterling and euro fell amid on the U.S. economy is coming off the boil while traders watch for more data bolstering the case for a Federal Reserve rate cut this year.
May retail sales released this week were tepid and the labor market appears to be weakening. The number of Americans filing new claims for unemployment benefits fell last week, but was still more than expected, data released on Thursday showed, indicating the jobs market remained strong despite a gradual cooling.
“U.S. (purchasing managers’ index) tomorrow could provide more of a catalyst for a higher volatility day, so we’ll be keeping our eyes on that to wrap up the week,” said Helen Given, associate director of trading at Monex USA, in Washington.
The dollar hit its highest since April 29 against the yen and was last up 0.51% at 158.89 yen in New York trading. Traders remain on alert for signs of continued intervention by the Bank of Japan to boost a currency that hit 34-year lows in late April.
Yen markets have been rattled since a dovish Bank of Japan last week maintained its policy target and said it intends to soon release a plan to trim bond buying.
“I think the market was kind of disappointed in the Bank of Japan’s actions. It felt a bit like kicking the can down the road again for the yen for the market,” said Amo Sahota, director, Klarity FX, in San Francisco.
“Well, in that case, we’ll just carry on with a very simple carry trade that we’ve been doing. The Bank of Japan and the Ministry of Finance must be getting a little nervous or focusing back on the intervention risks.”
Japan’s top currency diplomat Masato Kanda said earlier on Thursday there is no limit to the resources available for foreign exchange interventions, Jiji News Agency reported.
Along with yen weakness, downturns in the euro and sterling have supported the , which tracks the currency against six peers, rise 0.4% to 105.61.
The euro was last down 0.34% against the dollar at $1.0708. It hit a session low of 1.0706, but remained above the six-week low of $1.0667 hit on Friday.
Sterling fell 0.42% to $1.2667, after hitting a five-week low in afternoon trading. Earlier in the day, the Bank of England left rates on hold, with some policymakers saying their decision not to cut was “finely balanced”.
The Swiss franc also fell after the Swiss National Bank lowered interest rates to 1.25%, following a cut in March.
The dollar climbed 0.7% to 0.8909 francs as the Swiss currency fell from around a three-month high after the rate cut, which came with forecasts predicting a further fall in inflation to 1.1% in 2025.
The dollar index rose after a volatile 10 days, with mixed U.S. economic data and political uncertainty in France that rocked European markets.
“All told, it looks like the dollar is going to head toward its fifth straight week of gains simply because the U.S. economic situation is not as bad as that of many of its peers,” said Given.
In cryptocurrencies, bitcoin rose about 0.4% to $65,105.
Forex
Dollar bounces after sharp loss; euro retreats on Lagarde comment
Investing.com – The US dollar edged higher Monday, rebounding after the sharp losses at the end of last week on signs of cooling inflationary pressures, while the euro slipped following dovish comments from ECB head Christine Lagarde.
At 05:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher to 107.750, after falling sharply from a two-year high on Friday.
Dollar bounces after sharp retreat
The dollar bounced Monday after falling sharply on Friday as the Federal Reserve’s preferred showed moderate monthly rises in prices, with a measure of underlying inflation posting its smallest gain in six months.
That eased some concerns about how much the may cut in 2025, which had risen following the hawkish US rate outlook after the last Fed policy meeting of the year.
That said, traders are pricing in 38 basis points of rate cuts next year, shy of the two 25 bp rate cuts the Fed projected last week, with the market pushing the first easing of 2025 out to June, with a cut in March priced at around 53%.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Eurozone “very close” to ECB inflation goal
In Europe, fell 0.1% to 1.0414, near a two-year low it touched in November, down 5.5% this year, after European Central Bank President said the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“We’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%,” Lagarde said in an interview published by the Financial Times on Monday.
Earlier in December, Lagarde had said the central bank would cut interest rates further if inflation continued to ease towards its 2% target, as curbing growth was no longer necessary.
The lowered its key rate last week for the fourth time this year, and is likely to cut interest rates further in 2025 if inflation worries fade.
traded largely flat at 1.2571, after data showed that Britain’s economy failed to grow in the third quarter, adding to the signs of an economic slowdown.
The Office for National Statistics lowered its estimate for the change in output to 0.0% in the July-to-September period from a previous estimate of 0.1% growth.
The ONS also cut its estimate for growth in the second quarter to 0.4% from a previous 0.5%.
policymakers voted 6-3 to keep interest rates on hold last week, a bigger split than expected, amid worries over a slowing economy.
Yuan hits one-year high
In Asia, rose 0.2% to 156.72, after rising as far as 158 last week following dovish signals from the .
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
edged 0.2% higher to 7.3080, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
Forex
Asia FX muted, dollar slips from 2-yr high on soft inflation data
Investing.com– Most Asian currencies moved little on Monday, while the dollar steadied from a tumble from over two-year highs after soft U.S. inflation data spurred some hopes that interest rates will still fall in 2025.
Asian currencies were nursing steep losses against the dollar from last week, although they trimmed some declines on Friday after the soft inflation data. The outlook for regional markets also remains clouded by uncertainty over U.S. interest rates and policy under incoming President Donald Trump.
Dollar slips from 2-yr high as PCE data misses expectations
The and both steadied on Monday after clocking sharp losses on Friday.
The greenback slid from an over two-year peak after data- the Federal Reserve’s preferred inflation gauge- read softer-than-expected on Friday.
Still, the reading remained above the Fed’s 2% annual target, keeping uncertainty over interest rates in play.
The Fed had cut interest rates by 25 basis points last week, but flagged a slower pace of interest rate cuts in the coming year, citing concerns over sticky inflation and resilience in the labor market.
The Fed is expected to cut rates twice in 2025, although the path of rates still remains uncertain.
Markets took some relief from the government avoiding a shutdown after lawmakers approved an eleventh-hour spending bill.
Asia FX pressured by rate uncertainty
Despite clocking some gains on Friday, most Asian currencies were still trading lower for December, as the outlook for interest rates remained uncertain.
The Japanese yen’s pair rose 0.1% to around 156.59 yen, after rising as far as 158 yen last week following dovish signals from the Bank of Japan.
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
The Chinese yuan’s pair rose 0.1%, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
The Singapore dollar’s pair was flat ahead of inflation data due later in the day, while the South Korea’s won’s pair rose 0.3%.
The Australian dollar’s pair rose slightly after sinking to a two-year low last week.
The Indian rupee’s pair steadied after hitting a record high of over 85 rupees last week.
Forex
Dollar to weaken less than expected next year: UBS
Investing.com — The dollar recently notched fresh year-to-date highs against its rivals and is likely to remain strong after the Federal Reserve leaned more hawkish at its recent December meeting, analysts from UBS said in a recent note.
“While we still expect the dollar to fall, we now see less weakness in 2025 given these factors and adjust our forecasts slightly,” analysts from UBS said in a recent note.
The less bearish view on the USD comes in the wake of the greenback making fresh year-to-date highs in key exchange rates and the expectations for fewer U.S. rate cuts.
“The USD has been driven lately by prospects of fewer Fed rate cuts and tariff risks,” the analysts said.
The euro has been particularly affected by dollar strength, but is expected to trade around $1.05 against the greenback in the first half of 2025, the analysts forecast.
But a significant drop toward parity for the can’t be ruled out, “due to real tariff threats or further divergence in the macro backdrop between the US and Europe,” the analysts added.
Still, any move toward parity should be short-lived, the analysts said, amid expectations for the economic backdrop in Europe to improve in the second half of the year, narrowing the divergence between Europe and U.S. yields.
“The trajectory back into the middle of the trading range or higher, 1.08 to 1.10, comes with the view that two-year yield differentials will still narrow to some degree and better macro data out of Europe provide some underlying support for EURUSD in 2H25,” the analysts said.
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