Forex
Dollar falls as data points to economic slowdown; sterling weak
Investing.com – The U.S. dollar fell in early European trade Friday after weak data fuelled fears of a sharp slowdown in the world’s largest economy, potentially prompting the Federal Reserve to aggressively loosen monetary policy.
At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 103.997, continuing to fall after dropping 1.7% in July, its weakest monthly performance this year.
Dollar weaker on recession fears
Overnight, data showed U.S. contracted at the fastest pace in eight months in July, while a gauge for employment fell sharply, raising the potential for a U.S. recession.
It also indicates risks to the key report due later in the session are to the downside.
Economists are expecting the U.S. economy to have created 177,000 jobs in July, moderating from 206,000 in the prior month.
The , which has ticked higher in each of the past three months, is expected to hold steady at 4.1%.
“We are bearish on the dollar today because a) evidence from employment components of the ISM and NFIB surveys suggest the risks are skewed to a weaker payroll print, and b) once the equity turmoil and safe-haven demand abate, the macro drivers should drag the USD lower,” said analysts at ING, in a note.
“The July jobs report will tell the Federal Reserve how much risks are getting skewed to the employment side of their mandate.”
Sterling falls in wake of BOE cut
In Europe, slipped 0.1% to 1.2734, after falling as low as 1.2708 earlier for the first time since July 3 in the wake of the Bank of England’s decision to cut interest rates on Thursday.
BoE Governor Andrew Bailey led a 5-4 decision to reduce rates by a quarter-point to 5%, and said the central bank would move cautiously going forward, implying a steady pace of reductions.
rose 0.3% to 1.0820, bouncing after reaching a three-week low of 1.0777 overnight.
Data released on Thursday showed the eurozone manufacturing sector activity remained in contraction territory in July, suggesting the will have to cut interest rates again this year to boost a slowing economy.
“The eurozone calendar is empty today, and we are entering a seasonally quiet period not just for data but also for ECB speakers. Given how poor eurozone activity indicators have been of late, it is probably a good thing for the euro,” said ING.
Yen continues to surge
In Asia, fell 0.3% to 148.84, with the yen continuing to surge after the hiked interest rates by 15 basis points and flagged more potential hikes in 2024, citing some improving trends in the Japanese economy.
fell 0.5% to 7.2071, with the yuan slipping as weak PMI data fueled increased concerns over an economic slowdown.
Investing.com– The Japanese yen exhibited minimal movement on Tuesday, despite Bank of Japan (BOJ) Deputy Governor Ryozo Himino indicating a potential hike in the upcoming policy meeting.
Himino suggested that the central bank might consider raising rates, citing sustained wage growth and expectations of a clearer U.S. policy landscape following President-elect Donald Trump’s inaugural address later this month.
The yen’s pair edged 0.1% higher to 157.62 yen on Tuesday.
In recent months, the BOJ has been adjusting its monetary policy to address rising inflation. In March last year, it ended its negative interest rate policy, and by July, it had increased the short-term policy rate to 0.25%.
These measures aim to achieve a stable 2% inflation target, supported by robust wage growth and a weakening yen, which have contributed to higher import costs.
Despite these developments, the yen’s exchange rate against the U.S. dollar remained relatively stable, reflecting market skepticism about the likelihood of an imminent rate hike.
Analysts suggest that while the BOJ is signaling a shift towards policy normalization, uncertainties surrounding global economic conditions and domestic wage dynamics may lead to a cautious approach.
Barclays (LON:) expects the central bank to implement rate hikes in March and October, with a terminal rate of 0.75%.
The BOJ’s next policy meeting is scheduled for January 23-24, where new growth and price projections will be discussed.
Investing.com — UBS strategists expect the US dollar “to stay stronger for longer,” citing robust US economic activity and ongoing tariff concerns impacting other regions.
Monday saw the (DXY) soar to its highest level since November 2022, trading above the 110 mark during the session. This represents a roughly 9% appreciation since late September.
The US dollar’s recent strength has been bolstered by better-than-expected domestic data, including nonfarm payrolls and the services sector purchasing managers’ index. These positive indicators have led to a decrease in the anticipated number of Federal Reserve rate cuts this year, with the consequent rise in US yields lending broad support to the USD.
While US economic data is expected to remain solid in the near term, the outlook for Europe is less optimistic, with subdued growth prospects.
Although growth in China is forecasted to accelerate to 5% year-over-year for the fourth quarter, the threat of US tariffs poses a significant risk. Political and economic uncertainties in South Korea, the European Union, and the UK have been linked to weakness in their respective currencies.
According to UBS, potential monetary policy divergence is among the key factors that could further propel the dollar upward in the near term.
While the Fed is expected to cut rates by a total of 50 basis points in the second and third quarters, the European Central Bank is projected to reduce rates by 100 basis points in the first half of the year.
“Policy divergence is a powerful driver of currencies, which leads to trending FX markets and the potential for overshooting exchange rates,” strategists led by Mark Haefele wrote.
The firm also points out that tariff risks may not be fully accounted for in the current USD valuation. Despite the dollar’s recent rally being largely attributed to solid US macroeconomic data, the introduction of new tariffs could drive the dollar even higher.
UBS suggests that if tariffs are implemented, the DXY could trade between 110 and 115, with significant impacts on other major currency pairs.
“If tariffs were to materialize, DXY could trade in a 110-115 range, could drop below parity, could slide below 1.20, and could move toward 0.94, in our view,” strategists noted.
However, the investment bank believes that the story of 2025 could be a tale of two halves, with the dollar strength in the first half of the year potentially reversing in the second half.
The current trading position of the USD, which is considered strongly overvalued and shows the highest level of dollar net length since 2015, supports this view.
UBS’s revised forecasts for the EUR/USD pair reflect this expected trajectory. Strategists expect the pair to trade at 1.00 in March, 1.02 in June, and 1.06 in December 2025.
In the case of China, despite the possibility of dramatically higher effective tariff rates, the CNY has only partially priced in this risk, with UBS reiterating its forecast for the to reach 7.50 by June.
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
Unbiased review of Pocket Option broker
- Forex2 years ago
Dollar to pound sterling exchange rate today: Pound plummeted to its lowest since 1985
- 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
