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Asia FX muted, dollar nurses weekly losses ahead of nonfarm payrolls

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Asia FX muted, dollar nurses weekly losses ahead of nonfarm payrolls
© Reuters.

Investing.com– Most Asian currencies kept to a tight range on Friday, while the dollar was headed for a negative week ahead of key U.S. nonfarm payrolls data, which is expected to provide more cues on the path of U.S. interest rates. 

The data comes just a few days after the Federal Reserve kept interest rates steady and shot down expectations for an interest rate cut in March. But Fed Chair Jerome Powell struck a somewhat optimistic note on the U.S. economy, which drove investors into risk-driven assets despite the prospect of higher-for-longer interest rates. 

This saw traders sell off the dollar after a short-lived bounce. The and were flat in Asian trade on Friday, and were set to lose about 0.4% this week.

This trade aided most Asian currencies, with the – which is a key indicator of risk appetite towards Asian markets- rising 0.4%. The Aussie recovered from an over one-month low ahead of a next week, where the central bank is widely expected to keep interest rates steady.

and inflation readings released this week showed that while Australian inflation was easing, it still remained well above the RBA’s target range. 

Losses in the dollar offered some relief to Asian currencies after a bruising start to 2024, with most regional units logging steep losses in January. 

The was flat after largely lagging its regional peers in January. But the yen found some resilience in recent sessions amid growing conviction that the Bank of Japan was close to moving away from its ultra-dovish policies this year. 

The rose 0.2% as data showed grew slightly less than expected in January, while the traded sideways.

The was among the better performers this week, recovering sharply from near record lows after the ruling BJP party unveiled a surprisingly conservative annual budget, which bodes well for India’s bloated fiscal deficit. 

The was flat following a stronger-than-expected midpoint fix from the People’s Bank of China. Losses in the yuan were held back by reported intervention in currency markets by the PBOC, after a series of underwhelming purchasing managers index readings for January.

The readings indicated that an economic recovery in China showed little signs of improving in the first month of 2024.

Markets look to May rate cut as nonfarm payrolls approach 

After the Fed largely downplayed bets on a March interest rate cut, traders began pricing in a 25 basis point cut in May. 

The showed traders pricing in an over 60% chance for a May rate cut, with analysts also expecting the Fed to cut interest rates at least four more times after May. 

While such a scenario bodes well for risk-driven Asian currencies, the Fed has given no indication that it will trim rates by a wide margin in 2024. The central bank reiterated that its plans to cut rates will be largely dictated by the path of inflation, which has so far remained sticky.

data is expected to provide more cues on the labor market. The Fed has also cited a cooling labor market as one of the major factors to drive interest rate cuts. 

Forex

Dollar drifts lower; euro edges higher ahead of key wages data

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Dollar drifts lower; euro edges higher ahead of key wages data
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Investing.com – The U.S. dollar slipped lower in early European trade Tuesday, but remains close to recent highs given the prospects of higher-for-longer U.S. interest rates, while the euro faces a wages test later in the session.

At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 104.082. 

Dollar quiet ahead of Fed minutes

The greenback has edged lower Tuesday with U.S. traders set to return after Monday’s Presidents’ Day holiday, but remained close to three-month highs amid mounting expectations that the Federal Reserve will delay the start of its rate-cutting cycle to the start of the summer compared with the expected March at the beginning of the year.

Data released last week showed both U.S. and increased more than expected in January, while Fed official Mary Daly stated on Friday that there is still “more work to do” to bring inflation back down to the U.S. central bank’s 2% target.

The U.S. economic data calendar is largely empty Tuesday, likely resulting in quiet trading ahead of the release of the of the Fed meeting from last month, scheduled for Wednesday. 

“The view that the U.S. data will turn at some point, the Federal Reserve will cut, and the dollar will decline remains a consensus one (and often translates into selling USD rallies),” said analysts at ING, in a note. 

“We favor a strong dollar in the near term as U.S. data remains supportive, but this looks increasingly to be the perfect recipe for range-bound trading.”

Euro awaits ECB wage data

In Europe, traded 0.2% higher at 1.0795, helped data showing the eurozone’s current account in a larger than expected surplus in December, pointing to economic recovery.

Traders are now keenly awaiting the release of regional fourth-quarter negotiated wages data, due later in the session, given the importance Europe’s central bank has placed on wage growth as it attempts to contain inflation.

“This wage indicator had been on a steady rise since mid-2022, and a decline, even if contained, should be welcomed by the ECB,” ING added.

traded 0.1% higher at 1.2605, in quiet trading ahead of the release of the monthly surveys of business activity later this week.

The data is expected to show that British business activity is improving, led by a surge in service-sector activity to its fastest pace since last May.

This follows Friday’s data which showed U.K. grew at their fastest pace in nearly three years in January.

China cuts key rate, yen remains weak

In Asia, traded largely unchanged at 7.1983, helped by a strong daily midpoint fix after the People’s Bank of China cut its benchmark five-year loan prime rate by a bigger-than-expected 25 basis points to 3.95%, a record low. 

The move provided little cheer to Asian markets as it also underscored increasing government anxiety over an economic slowdown in Asia’s biggest economy.

rose 0.1% to 150.31, with the yen weakening past the 150 level as the prospect of a slow exit from the Bank of Japan’s ultra-dovish monetary stance put pressure on the Japanese currency.

Breaks above 150 have attracted government intervention in the past, with officials also offering verbal warnings on any such moves last week.

 

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Forex

Investors are buying back into the pound’s pizazz

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Investors are buying back into the pound's pizazz
© Reuters. FILE PHOTO: Pound and U.S. dollar banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration/File Photo

By Amanda Cooper

LONDON (Reuters) – The pound is playing catch-up with the dollar as investors beef up their bullish positions, and may get extra oomph from data this week showing British business activity is among the strongest in the developed world.

Monthly surveys of business activity this week are expected to show the UK topped the league table in February, well ahead of the euro zone and beating even the United States, which in the last year has been one of the few major countries not to have shown a dip into contraction.

This so-called “U.S. exceptionalism” has kept the dollar buoyant and investor confidence in a soft landing for the U.S. economy running high.

Economists polled by Reuters expect an index of British business activity to have risen to 52.7 in early February, led by a surge in service-sector activity to its fastest pace since last May.

Sterling is down just 0.9% against the dollar so far in 2024, having clawed back up from a 1.5% year-to-date loss two weeks ago.

Just four months ago, the International Monetary Fund declared Britain would be the slowest-growing economy among the Group of Seven nations in 2024.

A lot has changed since then, not least Germany tilting into actual recession and France barely growing. Data last week showed the UK, too, registered two straight quarters of negative growth last year.

The euro has fallen to its weakest in six months against sterling, having lost around 2% in value against its cross-Channel rival since the start of the year.

For the past few months, investors have enjoyed the pound’s higher yield that has derived from the view that, even though the economy is sluggish, persistent inflation will mean the Bank of England will have to keep interest rates higher for longer.

Weekly data from the Commodity Futures Trading Commission (CFTC) shows speculators lifted their bullish sterling position to $3.971 billion in the week to Feb 13, just shy of last July’s nine-year high.

Leveraged funds, which include hedge funds and money managers, have aggressively added to their long sterling positions since early December, and now hold their largest bet on a pound rally since October.

Aside from the pound’s yield appeal, investors may be taking heart finally from the data too.

JPMorgan nudged up its 2024 UK growth forecast in January, while Deutsche Bank last week said it had made a modest upward tweak to its quarterly growth estimates.

Bank of America has turned bullish on sterling and last week boosted its year-end target for the pound to $1.37 – some 8.5% above where it is trading right now.

In a note last week, ING issued a reminder not to “get carried away” by signs of green shoots in the economy – the BoE is focussed on services and wage inflation right now – but acknowledged that the outlook for Britain’s economy is starting to brighten.

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Forex

Asia FX creeps lower, dollar firm as China rate cut gives little support

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Asia FX creeps lower, dollar firm as China rate cut gives little support
© Reuters.

Investing.com– Most Asian currencies crept lower on Tuesday amid persistent concerns over a slowing Chinese economic recovery and higher-for-longer U.S. interest rates, while the dollar edged up and remained near three-month highs.

The People’s Bank of China cut its benchmark five-year by a bigger-than-expected 25 basis points to 3.95%, a record low. But the move provided little cheer to Asian markets, given that it also underscored increasing government anxiety over an economic slowdown in Asia’s biggest economy.

The fell slightly after the move, although bigger losses in the currency were held back by a stronger-than-expected midpoint fix from the PBOC. 

Still, the yuan remained close to its weakest level in three months, and was also close to  breaking above the 7.2 level to the dollar. 

Broader Asian currencies were still reeling from a string of stronger-than-expected U.S. inflation readings from last week, which put the dollar within sight of a three-month high. But the greenback saw few cues for movement from a U.S. holiday on Monday.

The and both rose 0.1% each in Asian trade, buoyed by the prospect of higher-for-longer U.S. interest rates in 2024. 

The was among the worst-hit by recent fears of higher U.S. rates, with the currency weakening past the 150 level on Tuesday. The prospect of a slow exit from the Bank of Japan’s ultra-dovish monetary stance also put pressure on the yen.

Still, the yen found some support around 150 as traders watched for any potential intervention in currency markets by the Japanese government. Breaks above 150 have attracted government intervention in the past, with officials also offering verbal warnings on any such moves last week.

The fell 0.1%, even as the showed the bank still remained inclined towards hiking interest rates further to curb sticky inflation.

But the RBA also said that it was prepared to loosen monetary conditions swiftly if the Australian economy cooled too quickly due to pressure from high rates. 

The RBA had kept rates steady at 4.35% earlier in February, but had struck an unexpectedly hawkish tone- which offered some support to the Aussie. 

Among other Asian currencies, the fell 0.1%, while the fell 0.3%.

The firmed slightly below the 83 level, but still remained vulnerable.

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