Forex

Dollar steady, focus on Fed path, China, Middle East

Published

1 week ago

October 8, 2024

By Alden Bentley and Medha Singh

NEW YORK/LONDON (Reuters) – The dollar held steady near seven-week highs against major currencies on Tuesday as investors assessed the outlook for further U.S. rate cuts, with concerns about the conflict in the Middle East and China’s economy lending support.

The U.S. data calendar is relatively light this week, but investors will seek trading signals from Wednesday’s release of the minutes from the Federal Reserve’s September meeting, when officials almost unanimously agreed to cut rates by 50 basis points, as well as Thursday’s September Consumer Price Index report.

The euro inched 0.05% higher to $1.0979, still near the seven-week low of $1.09515 hit last week. The pound edged 0.17% higher to $1.3104, after hitting a three-week low of $1.30595 on Monday.

Traders have shifted their expectations of monetary easing from the U.S. Federal Reserve this year. A strong jobs report last week gave credence to Fed Chair Jerome Powell’s comments that the central bank would stick to its usual quarter-percentage-point rate reductions after it began its easing cycle with September’s big cut.

Federal Reserve Bank of New York President John Williams, a permanent vote of the Fed’s rate-setting Committee, echoed Powell’s comments, telling the Financial Times in an interview that ran on Tuesday he did not consider the September move “as the rule of how we act in the future”.

Markets are ascribing around a 90% chance of a 25-basis-point reduction in November, the CME FedWatch tool showed and some now bet on no cut at all. Just 50 bps of easing is priced in by December, down from more than 70 bps a week earlier.

That has helped the currency surge to multi-week highs against the euro, sterling and the yen. The yen, however, clawed back some of the losses on Tuesday as rising geopolitical worries led investors to a flight towards safe-haven assets.

The , which measures the U.S. currency against major rivals, slipped 0.3% to 102.45.

“If soft enough, Thursday’s CPI update could eventually help (in) calming the Fed doves’ nerves and prevent the U.S. dollar from stepping into the medium-term bullish consolidation zone against many majors,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“If not, the no-November-cut pricing could take off, and that would mean higher yields, a stronger U.S. dollar across the board, weaker other currencies, and some negative pressure on equity valuations.”

The benchmark remained above 4%, having touched the level on Monday for the first time in two months as traders curtailed wagers on big rate cuts. [US/]

Meanwhile, the dropped against the dollar, while stock markets returned with a strong open after a week-long holiday break, but finished well off their highs as a lack of detail dented optimism around stimulus measures.

“That huge rally that we saw for Chinese equities and the yuan has kind of come to a stop this morning. So risk sentiment isn’t super great today,” said Helen Given, associate director of trading at Monex (USA) in Washington, DC. “That’s why the yen is up a little bit against the dollar but most other G10 currencies are relatively flat.”

Dollar/yen eased 0.07% to 148.07, after slumping to a seven-week low of 149.10 on Monday on concerns that the Bank of Japan would would be raising rates in the near term.

In other currency pairs, the dollar rose to its highest price since Aug. 19 against the Canadian dollar and was last up 0.27% at C$1.3653. The Australian dollar slid 0.46% to US$0.6725, delving its lowest since Sept. 16.

Forex

US dollar gains as US election draws nearer – UBS

Published

7 hours ago

October 17, 2024

Investing.com – The US dollar has gained more ground as the US presidential election draws near, UBS noted, with the market seeing rising odds of a win for Republican candidate Donald Trump.

A new USD-positive over the past week has been media reports of somewhat better outlook for Donald Trump in the latest polls, as outcomes that allow for policies such as more aggressive tariffs are viewed as more USD positive.

“Higher odds of a Trump presidency are likely to be associated with a stronger USD near term,” said analysts at UBS, in a note dated Oct. 16.

Where does this leave us now with our USD views?

Our expected ranges between Sep–Dec 2024 incorporated the possibility of a material USD rebound between now and year end, even if our year-end forecasts see a modestly lower USD from current levels.

Last week, with an eye to our year end forecast, we entered a long call reverse knockout, but we are not willing to implement a similar trade yet for and .

The spot is still far enough from our range extremes and high JPY implied volatility and negative carry make long JPY positions unattractive so close to US elections.

Turning to this week’s ECB meeting, the market is very confident that another 25bp rate cut will be delivered and we do not have a strong reason to disagree.

Market expectations are very muted for any form of surprise, and risk reversal skews bid again for EUR puts point to a market that is already primed for the risk of EUR softness.

With market pricing in line with our economists’ terminal rate expectations, we see EUR/USD as more exposed to US developments near-term, leaving us reluctant to fade recent softness on ECB reasons alone.

At 06:30 ET (10:30 GMT), EUR/USD rose 0.1% to 1.0894, USD/JPY gained 0.1% to 149.34 and AUD/USD fell 0.2% to 0.6685.

Forex

Sell euro rallies around the ECB meeting – Citi

Published

7 hours ago

October 17, 2024

Investing.com – The European Central Bank holds its latest policy-setting meeting later this week, and Citigroup advises selling any rallies in the euro around this key event.

Markets are pricing in around 49 basis points of easing over the remaining two ECB meetings this year, which could limit dovish repricing around Thursday’s event, according to analysts at Citi, in a note dated Oct. 15.

“We see scope for a tactical bounce in EUR around this Thursday’s ECB meeting, which we like fading into November as US election risk premium materializes,” Citi said.

That said, “we like fading any subsequent rallies in EUR as we approach November and US election risk premium gets better priced.”

There is some evidence of this unfolding, the bank added, as EUR looks undervalued on its short-term fair value model and as Citi’s FX Positioning data suggests adding to EUR shorts.

“But our broader FX election basket still screens as undervalued relative to Trump betting markets, and we remain short EURUSD in both spot and options,” says Citi. “We would look to sell any retest of the 1.10 double top neckline — any break above there risks a move towards our adjusted stop of 1.1050, but if that resistance holds, we have higher conviction of a move towards our (and the double top) target of 1.08, with potential overshoot towards 1.07.”

At 05:25 ET (09:25 GMT), traded largely flat at 1.0892, almost 2% lower over the last month.

Forex

Dollar gains on trimmed rate expectations; sterling weakens post inflation

Published

7 hours ago

October 17, 2024

Investing.com – The U.S. dollar edged higher Wednesday, trading near two-month peaks on expectations of modest rate cuts from the Federal Reserve this year, while sterling slumped after benign inflation data.

At 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 103.180, remaining close to Monday’s two-month peak.

Dollar helped by trimmed rate cut expectations

Recent data indicating a resilient economy coupled with slightly hotter-than-expected inflation in September have led market participants to trim bets for an aggressive U.S. rate reduction.

Adding to these expectations were comments from Atlanta Federal Reserve President on Tuesday, who said he had penciled in just one more interest rate reduction of 25 basis points this year when he updated his projections for last month’s U.S. central bank meeting.

Most market participants see two more cuts this year, totaling 50 bps, and traders currently lay 92% odds for a 25-basis-point cut when the Fed next decides policy on Nov. 7, with an 8% probability of no change, according to CME Group’s (NASDAQ:) FedWatch Tool.

Sterling slumps after inflation release

In Europe, slumped 0.5% to 1.3003, after data showed British inflation fell more than expected in September, paving the way for a rate cut next month.

The UK’s fell to 1.7% on an annual basis, below the forecast 1.9% and the 2.2% recorded a month earlier.

This was the first time it had fallen below the Bank of England’s 2% target since April 2021, and added to data seen earlier in the week that showed British pay grew at its slowest pace in more than two years.

“The data is unequivocally dovish for the Bank of England and paves the way for rate cuts at the two remaining meetings this year (November and December),” said analysts at ING, in a note.

“Given the comments by Governor Andrew Bailey earlier this month suggesting the BoE could increase the pace of easing, markets may be tempted to price in some chance of a 50bp rate cut in November.”

traded 0.1% lower to 1.0882, ahead of Thursday’s policy-setting meeting by the European Central Bank.

The has already lowered rates twice this year and a cut to the 3.5% deposit rate this week is almost fully priced in by financial markets.

“EUR/USD is predominantly driven by external factors. The substantial drop in oil prices has narrowed the scope for a further drop based on market factors, but we continue to suspect that pre-US election positioning should favor a weaker EUR/USD,” said ING.

Yuan nurses weekly losses

fell slightly to 7.1179, with the yuan nursing losses this week as sentiment soured over the country’s plans for more stimulus.

China’s Ministry of Finance said it will enact a slew of fiscal measures to boost growth, but did not specify the timing or size of the planned measures, spurring uncertainty over its effectiveness.

rose 0.2% to 149.43, with the pair climbing closer to the 150 resistance level.

data due later this week is expected to offer more cues on the Bank of Japan’s plans to hike rates further.