Forex
Analysis-Dollar bears eye shifts in global yields, growth to play further weakness
By Saqib Iqbal Ahmed
NEW YORK (Reuters) -Traders gauging how to play further downside in the U.S. dollar are looking to the relative strength of economies around the world, as interest rate shifts from global central banks shake up currency markets.
The fell 4.8% against a basket of currencies in the third quarter, its worst quarterly performance in nearly two years. Pressure on the U.S. currency increased after the Fed delivered a jumbo-sized 50 basis point cut last month, its first reduction since 2020.
How much further the dollar falls and which currencies will benefit may largely be a question of yields. For years, U.S. yields have stood above most developed economies, bolstering the dollar’s allure against its peers.
That picture is shifting, with the Fed and most other central banks cutting interest rates to safeguard economic growth. Many traders betting against the buck are doing so through currencies whose yield gap with the dollar is expected to narrow.
Net bets on a weaker dollar have grown to $14.1 billion in futures markets, the highest level in about a year, Commodity Futures Trading Commission data showed. The path lower for the dollar, however, is likely to be a bumpy one.
The comparatively strong U.S. economy could limit how much the Fed cuts rates, complicating the outlook for further dollar declines. Meanwhile, the U.S. presidential election and geopolitical worries threaten to inject further volatility into currency markets in coming weeks.
“It’s not just necessarily ‘sell the dollar and buy everything,'” said Jack McIntyre, portfolio manager at Brandywine Global. “You have to be a little more selective.”
While the is little changed for the year, it is down about 5% from its April high, with the currency notching drops against several developed market peers as U.S. yields fell in anticipation of monetary policy easing by the Fed.
Some of the risks to the weaker dollar view became more apparent in recent days.
The dollar rose sharply against the British pound on Thursday after the Bank of England said it could move more aggressively to cut interest rates if inflation pressures continued to weaken.
A day before, data showed euro zone inflation dipped below 2% for the first time since mid-2021 in September, reinforcing the case for the European Central Bank to cut rates this month, a potential source of weakness for the euro.
The dollar’s role as a safe haven has also been on display as Middle East tensions have escalated in recent days.
From the U.S. side, Friday’s labor market data could help shape views on how much the Fed might cut rates for the rest of the year.
Though futures markets show an additional 68 basis points of cuts priced in, a strong number could bolster the case for more moderate policy easing. However, “if we are entering a soft patch for the U.S. economy, the market is going to discount more cuts into the curve and that will weaken the dollar,” said Christian Dery, head of macro strategy at Capital Fund Management.
Nevertheless, investors believe more downside remains for the dollar in some corners of the market.
Paresh Upadhyaya, director of fixed-income and currency strategy at Amundi US, said he is looking for “idiosyncratic stories like widening interest rate differentials caused by a divergence in monetary policy.”
His plays on a weaker dollar include positions in the Norwegian krone and Australian dollar. Norway’s central bank recently held its policy interest rate at a 16-year high, signaling any cuts must wait until early 2025. Australia’s central bank held rates steady last week and said interest rate cuts were unlikely in the near term.
Upadhyaya also added to a position in the Brazilian real. Unlike many of its peers, Brazil’s central bank hiked rates last month as it looks to tackle a challenging inflation outlook. The Brazilian real is down about 10% against the dollar this year.
The Japanese yen could also find further support from diverging central bank policy, investors said. The Bank of Japan tightened rates to 0.25% in July in a landmark shift away from a decade-long stimulus program aimed at firing up economic growth.
Though the Bank of Japan has signaled it is in no rush to raise rates further, the narrowing gap between rates in Japan and the U.S. has already fueled a 10% rally in the yen from its 2024 lows against the dollar. Net bullish bets on the currency against the dollar stand at $5.8 billion, CFTC data showed.
“With global central banks also starting to cut rates, the biggest gainer versus the USD will be in the likes of the (yen),” said Natsumi Matsuba, head of FX trading and portfolio management at Russell Investments.
An analysis of currency valuations based on metrics such as purchasing power parity and real effective exchange rates released by BofA Global Research last month showed that the yen and Norwegian krone are among the developed world’s most undervalued currencies. The dollar and Swiss franc are the two most overvalued, the study found.
Whatever their positioning, however, investors must also contend with potential volatility surrounding the U.S. presidential election, slated for Nov. 5.
Uncertainty in the weeks before the vote could send safety-seeking investors to the dollar. Many investors also believe a win by Republican candidate Donald Trump could buoy the dollar.
“The wild card in any forecast right now for our currency is the U.S. election,” said Brandywine’s McIntyre, who remains bearish on the U.S. dollar, but less so than before the currency’s recent slide. “That’s why it’s hard to be super convicted.”
Investing.com– Most Asian currencies moved little on Friday and were nursing losses for the week, while the dollar steadied at a one-year peak and was set for a strong week as markets dialed back bets on lower U.S. interest rates.
The dollar was headed for a sixth straight week of gains as it extended its rally on Donald Trump’s election victory from last week. Less dovish statements from the Federal Reserve and strong U.S. inflation readings added to the greenback’s strength.
This trend weighed heavily on most Asian units, with middling economic readings from China and Japan adding to the negative sentiment on Friday.
Dollar strong as rate cut bets recede on inflation, Powell comments
The and both rose 0.1% on Friday and were close to a one-year peak hit earlier in the week.
The greenback was up between 1.6% and 2% this week, its best week since end-September.
Gains in the dollar were initially driven by Trump’s election victory, with expansionary policies under his administration expected to drive up inflation in the long term.
In the near-term, sticky and inflation readings spurred doubts over future rate cuts by the Federal Reserve, especially as Chair Jerome Powell said resilience in the U.S. economy gave the central bank more time to consider cutting rates.
His comments saw traders sharply dial back expectations for a 25 basis point cut in December.
Japanese yen fragile, USDJPY crosses 156 after weak GDP
The Japanese yen weakened further on Friday, with the pair trading above 156 yen and at its highest level in over three months.
data for the third quarter showed Japanese economic growth slowed sharply from the prior quarter. While remained strong, weakness in other sectors of the economy, especially in exports and investment, weighed on growth.
The also grew less than expected in Q3, indicating that inflation growth slowed during the quarter.
Friday’s data drove up hopes that weakness in the economy will keep the Bank of Japan from raising interest rates further- a scenario that bodes poorly for the yen.
Broader Asian currencies were fragile and headed for weekly losses. The Chinese yuan’s pair rose 0.1% and was set for a seventh straight week of gains.
Chinese missed expectations, while grew more than expected in October on the Golden Week holiday. But overall economic conditions in the country still remained week, with recent stimulus measures largely underwhelming markets.
Focus is now on a potential cut by the People’s Bank next week.
Concerns over China saw the Australian dollar weaken, with the pair hovering around a three-month low.
The Singapore dollar’s pair fell 0.1%, while the South Korean won’s pair fell 0.2%. Both currencies were headed for losses this week.
The Indian rupee’s pair steadied after hitting record highs this week.
By Chibuike Oguh and Alun John
NEW YORK (Reuters) – The U.S. dollar strengthened against major peers on Thursday, trading at a one-year high and headed for a fifth straight session of gains, propelled by market expectations since Donald Trump clinched a dramatic return to the White House.
Markets anticipate that the incoming Trump administration will impose trade tariffs and tighten immigration as well as deepen the deficit, measures deemed to be inflationary.
The president-elect’s Republican Party will control both houses of Congress when he takes office in January, Edison Research projected on Wednesday, giving him wide powers to push his agenda.
The greenback climbed above 156 yen for the first time since July and was last up 0.56% to 156.38 per dollar. The euro slumped to its weakest since November 2023 and was down 0.45% at $1.05165 in choppy trading. Sterling hit its lowest on the dollar in four months and was last down 0.44% to $1.2651.
Following his election, the market has been looking at Trump’s appointment and seeing that he is not going to compromise on his campaign goals, whether it’s tariffs or China, said Steven Englander, head of G10 FX strategy at Standard Chartered (OTC:) in New York. “The market is assuming that he’s going to go ahead and implement all the things that he’s promised to do,” he said.
U.S. producer prices picked up in October, the Labor Department reported on Thursday, a day after data showed that consumer inflation had barely budged last month. The number of Americans filing new applications for unemployment benefits fell last week, suggesting labor market strength, according to the Labor Department.
The data did not change views that the Federal Reserve would deliver a third interest rate cut next month.
Fed chair Jerome Powell said on Thursday there was no need to rush rate cuts given the strong U.S. economy. His speech echoed earlier comments on Thursday by Federal Reserve governor Adriana Kugler and Richmond Fed President Thomas Barkin.
The , which measures the currency against six top counterparts including the euro and the yen, rose 0.17% to 106.64, after reaching as high as 107.07, its highest since early November 2023. The yield on benchmark U.S. 10-year notes fell 3.7 basis points to 4.414%.
pulled back from a record high of $93,480 overnight and was last up 0.96% to $89,489. Trump has vowed to make the United States “the crypto capital of the planet.” declined 0.27% to $3,144.
The Swiss franc remained under pressure against the dollar, which was up 0.3% to 0.889 franc. The Australian dollar fell to a three-month low after marginally weaker jobs data, weakening to as low as $0.6453.
“The price action that we’ve had is expected given the election outcome and the logic behind it is built on expectations rather than actualities: expectations of fiscal stimulus, tariffs and deregulation,” said Daragh Maher, head of FX strategy, Americas, at HSBC in New York.
“We’ve been in the dollar-bullish camp, so this seats neatly with our narrative, but clearly there’s been a big repricing.”
By Chibuike Oguh and Amanda Cooper
NEW YORK/LONDON (Reuters) -The U.S. dollar was set for its biggest weekly gain in over a month on Friday, as markets reassessed expectations of future interest rate cuts and with the view that President-elect Donald Trump’s policies could be inflationary.
The dollar has benefited from market expectation that Trump administration policies, including tariffs and tax cuts, could stoke inflation, leaving the Federal Reserve less room to cut interest rates.
Fed Chairman Jerome Powell said on Thursday the U.S. central bank did not need to rush to lower interest rates, prompting traders to axe their more aggressive bets on a rate cut next month and beyond.
The greenback was set to notch a weekly gain against the Japanese yen after it traded above 156 yen this week for the first time since July. It was last down 1.4% to 154.145 per dollar.
The euro was headed for the second straight week of losses after slumping to its lowest level since October 2023. It was last up at $1.054025.
“Today is more about the Fed than anything else, and I’m a bit surprised that the euro is a little stronger in the face of what were perceived to be more hawkish comments from Powell,” said Thierry Albert Wizman, global FX and rates strategist at Macquarie in New York.
“People are maybe thinking that there’s going to be a bit more chaos next year in view of some of the questionableness of these (U.S. cabinet) candidate appointments. So I can see why people are losing a little bit of faith in the Trump trade and the American exceptionalism story generally.”
Commerce Department data on Friday showed that U.S. retail sales increased slightly more than expected in October, but underlying momentum in consumer spending appeared to slow at the start of the fourth quarter.
Boston Fed president Susan Collins in comments published Friday in the Wall Street Journal also said rate cuts could be paused as soon as the Dec. 17-18 meeting, depending on upcoming data on jobs and inflation. The probability of a December cut has dropped to around 61% from closer to 82% a day ago, according to CME’s FedWatch tool.
Sterling was on track for its steepest weekly fall since January 2023, at roughly 2.4%. It was last down 0.38% at $1.2620. The pound showed little reaction to data showing Britain’s economy contracted unexpectedly in September and growth slowed to a crawl over the third quarter.
The is trading around a one-year high against a basket of currencies at 107.07, having risen nearly 1.65% this week, set for its best performance since September. It was last down 0.19% at 106.68.
In cryptocurrencies, bitcoin traded around $90,000, as some investors took profits after a stellar run. gained 2.64% to $90,545.00. declined 2.17% to $3,051.30.
“Today is really just an ahead-of-weekend consolidation; we haven’t taken out any key levels like 106 in the euro like 127 in sterling,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“The market overreacted to Powell yesterday, but U.S. interest rates are still firm. So whatever forces were unleashed by the U.S. election, they haven’t been exhausted yet.”
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
Dollar to pound sterling exchange rate today: Pound plummeted to its lowest since 1985
- Forex2 years ago
Unbiased review of Pocket Option broker
- 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
