Forex
Dollar falls amid economic data dump before long weekend
By Alden Bentley
NEW YORK (Reuters) -The dollar fell broadly on Wednesday in thin pre-holiday trade, digesting a slew of indicators that underscored U.S. economic resilience while investors assessed the risk that President-elect Donald Trump will start a tariff war no one will win.
The decline further unwound the dollar’s recent rally. Few traders were interested in building or holding positions before a long Thanksgiving weekend for many of them that dovetails with month end. Markets are closed Thursday and exchanges close early on Friday.
Moreover, revised data showing gross domestic product rose at a 2.8% rate in the third quarter, as expected and the same as last month’s first estimate, did not much bolster the case for the Federal Reserve to ease again next month, although traders still leaned that way, lifting odds a bit to 67%.
Neither did consumer spending data that showed progress on lowering inflation appears to have stalled in recent months while the economy retained much of its solid growth momentum early in the fourth quarter.
“We all expected that inflation would pop up a little bit, but inflation is not getting out of hand. And that’s the key,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“This paves the way for a 25 basis point cut in December and then probably a pause. But the pause won’t likely be due to inflation data, but because of uncertainties over Trump’s tariffs. I think the Fed will grow cautious.”
The Commerce Department’s personal consumption expenditures price index climbed 0.2% in October, matching September’s unrevised gain. In the 12 months through October, the PCE price index increased 2.3% after advancing 2.1% in September.
While October durable goods orders rose a smaller-than-expected 0.2%, applications for unemployment benefits at 213,000 were a bit lower than last week’s upwardly revised 215,000 jobless claims, indicating a solid labor market.
Dollar/yen fell to its lowest in about five weeks, and was down 1.43% at 150.91 as trading wound down. The weakening dollar lifted the euro 0.74% to $1.0564. The euro/dollar pair hit its highest in a week, while the , which measures the greenback against a basket of currencies including the yen and the euro, fell to its lowest since Nov. 13 and in afternoon trade was off 0.74% at 106.06. That put it down 1.9% from a two year high hit on Friday.
“Today may be a bit more about some profit taking, at least for the U.S. for a long weekend. “It’s had, like I said, a phenomenal run here and still remains very, very robust,” said Amo Sahota, executive directors of Klarity FX in San Francisco.
Trump’s vows on Monday of big tariffs on Canada, Mexico and China, the United States’ three largest trading partners, knocked their currencies lower and have left investors jittery.
Some analysts argued that inflation risks from tariffs and proposed tax cuts could prevent Trump from ushering in more disruptive measures.
“The recent sharp dollar appreciation largely decreases the asset values in dollars outside U.S. and hence increases the rebalancing need to sell the dollar at the month-end,” said Sheryl Dong, forex strategist at Barclays (LON:).
The outperforming yen has benefited from bets for a December rate hike in Japan, and position adjustments.
The dollar’s sell-off accelerated on Wednesday after the pair fell below the 200-day moving average at 151.99.
“That I would deem that as being fairly significant in today’s marketplace as well, just technically,” Sahota said.
Analysts noted that there was some relief that the country is not in the firing line of Trump’s possible tariffs.
“Japan has a strong hand in dealing with U.S. trade concerns,” said Jane Foley, senior forex strategist at RaboBank.
It “is the U.S.’s largest overseas holder of U.S. Treasuries and the largest provider of foreign direct investment into the U.S.,” she added.
A ceasefire between Israel and Iran-backed group Hezbollah came into effect on Wednesday under a deal that aims to end hostilities across the Israeli-Lebanese border. While not a big factor on Wednesday, the wars in the Middle East and Ukraine have been a support for the dollar as a safe haven.
Against its Canadian counterpart, the greenback slipped 0.18% to C$1.4027 , after touching a 4-1/2-year high of $1.4177 on Tuesday.
The dollar was little changed against the Mexican peso near Tuesday’s top that was its highest against since July 2022, fetching 20.622 pesos.
Sterling strengthened 0.81% to $1.267, the Australian dollar strengthened 0.34% to US$0.6494 and the strengthened 1.06% to US$0.5896.
The steadied after drooping on Tuesday’s tariff news. The dollar was 0.15% lower at 7.245 per dollar.
In cryptocurrencies, bitcoin was up 5.19% at $96,414, digesting its run up to almost $100,000 last week.
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.
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.
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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