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Dollar down after data but set for ninth straight weekly climb

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Dollar down after data but set for ninth straight weekly climb
© Reuters. FILE PHOTO: U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Chuck Mikolajczak

NEW YORK (Reuters) – The U.S. dollar was lower on Friday, after data showing a dip in consumer sentiment, but the greenback was still poised for a ninth straight week of gains, while the yen weakened to a 10-month low.

The University of Michigan’s preliminary reading of its Consumer Sentiment Index dropped to 67.7 this month from a final reading of 69.5 in August and below the forecast of 69.1 among economists polled by Reuters. However, consumers saw inflation lower on both a one-year and five-year basis.

Earlier data from the Labor Department showed import prices increased 0.5% last month as fuel prices jumped, but underlying price pressures stayed subdued while a separate report from the New York Fed showed factory activity picked up in the state in September.

“None of the data currently points to a recession. Nevertheless, the fed futures still points to the end of next year, a lower rate,” said Joseph Trevisani, senior analyst at FXStreet.com.

“If the credit markets are still convinced that when you increase rates as much as the Fed has, you eventually get a recession … where do people go? They go to the dollar.”

The Federal Reserve will hold a policy meeting next week on Sept. 19-20 and the central bank is largely viewed as keeping interest rates unchanged, with a 97% expectation for no action, according to CME’s FedWatch Tool.

After edging higher earlier in the week, expectations for a 25 basis-point hike at the November meeting have declined to 30.6% from 43.6% a week ago, with a small chance of a cut being priced in as early as January.

The was down 0.08% at 105.32, but was still poised for its ninth straight weekly gain, which would mark its longest weekly run since a 12-week streak of gains in 2014.

The greenback continued to strengthen against the yen, after the Japanese currency had a sharp move higher versus the dollar earlier in the week. The dollar was last up 0.25% at 147.84 yen after hitting a 10-month high of 147.96.

The euro was up 0.2% at $1.0666, having recovered slightly from Thursday’s six-month low of $1.0629 following the European Central Bank’s (ECB) policy announcement, in which the central bank raised rates to a record-high 4% but signaled it was likely done with hikes.

However, ECB policymakers pushed back on the idea the central bank was done with rate hikes, saying rates will be kept high for an extended period and could even be raised again if needed.

The euro was on track for a ninth straight weekly fall against the dollar.

Sterling, declined 0.2% at $1.2386. Along with the Fed, the Bank of England will also make a policy announcement next week.

Forex

BofA notes broad USD sell-off on positive US data

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Bank of America reported that investors had broadly sold off the US dollar last week, influenced by slightly positive economic indicators from the United States. The movement came in response to somewhat encouraging US inflation data and softer-than-expected retail sales figures.

According to the Bank of America, the sell-off of the US dollar was widespread, with real money investors now holding a slightly short position on the currency. Despite this trend, hedge funds’ long positions on the US dollar are still near the highest levels seen in the past five years.

In the foreign exchange markets, the Australian dollar (AUD) saw increased interest, with investors continuing to build their long positions. Conversely, short positions in the Swedish krona (SEK) and the New Zealand dollar (NZD) experienced a slight reduction.

Emerging market currencies also attracted attention, with buying activity focused particularly on regions such as Europe, the Middle East, and Africa (EMEA), as well as Asia. The Turkish lira (TRY) was highlighted as a currency where both hedge funds and emerging market investors increased their buying across the board.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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Dollar edges down, ether’s 2-month high fuels crypto rally

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By Stefano Rebaudo

(Reuters) -The dollar struggled for direction on Tuesday as investors stuck to their views for the expected timing of Federal Reserve monetary easing this year.

Ether was set for its largest two-day gain in nearly two years and bitcoin approached a record high on speculation about the outcome of applications for U.S. spot exchange-traded funds that would track the world’s second-biggest cryptocurrency.

The euro rose 0.12% to $1.0869.

Investors are awaiting Thursday’s data from the European Central Bank (ECB) negotiated wage tracker and the euro zone Purchasing Managers’ Index (PMI) which could provide further clues about the monetary cycle in the euro area.

Meanwhile, with little on the U.S. economic data calendar this week to guide the direction of the dollar, investors’ focus is turning to a slew of Federal Reserve speakers.

Several officials on Monday called for continued policy caution, even after data last week showed an easing in consumer price pressures in April.

Money markets are now pricing in 42 basis points (bps) of Fed rate cuts in 2024 — implying one 25 bps reduction and a 68% chance of a second move by December — from fully pricing in two cuts before recent hawkish comments from central bank officials.

They are betting on 63 bps of ECB rate cuts in 2024 from around 73 bps in mid-May.

Some analysts highlighted that Atlanta Fed President Raphael Bostic made dollar-positive remarks when he cautioned that the Fed’s benchmark rate would likely end up at a higher steady rate than in the past decade.

“We expect the dollar to weaken after the first rate cut (by the Fed), which markets now price in September, but we also see the risk of a delay in the monetary easing with the Fed making the first move in December,” said Athanasios Vamvakidis, global head of forex strategy at BofA.

Against a basket of currencies, the dollar dropped 0.08% at 104.52.

“We see risks towards far greater divergence favouring the Fed,” argued George Saravelos, global head of forex research at Deutsche Bank, after noting remarkable symmetry in monetary policy that is still priced in by markets.

“Combined with the status of high-yielding currency, this provides a powerful underpinning to USD strength,” he added.

On the data front, the focus will now be on the Personal Consumption Expenditures (PCE) price index report – the Fed’s preferred gauge of inflation – due on May 31.

In the cryptoverse, ether jumped 6.2% to $3.715.60 after hitting $3,730.70, its highest level since March 16. It surged nearly 14% in the previous session – its largest daily percentage gain since November 2022.

broke above the $70,000 level and was last trading 2% higher at $71,128. It hit its all-time high at $73,803.25 in March.

The jump in cryptocurrencies also has “to do with that core (U.S.) inflation data last week that’s boosted risk sentiment and obviously brought rate cuts back into play,” said Tony Sycamore, a market analyst at IG.

Against the yen, the dollar dropped 0.06% to 156.20, not far from its lowest in over 30 years at around 160.

Fears of intervention from Japanese authorities deterred traders from pushing the yen to new lows. However, the still-stark interest rate differentials between the U.S. and Japan maintained the appeal of the yen as a funding currency.

“Forex interventions can buy some time and temporarily avoid an excessive depreciation of the yen, but if the Fed starts cutting later than the markets currently expect, it can become challenging for Japanese authorities to keep the yen below certain levels,” BofA’s Vamvakidis argued.

The Canadian dollar was flat at $1.3627 ahead of inflation data later in the session.

“We have called for a Bank of Canada (BoC) rate cut in June for the past couple of months, and are expecting that to make the increasingly less attractive compared to other commodity currencies,” said Francesco Pesole strategist at ING.

© Reuters. FILE PHOTO: A representations of cryptocurrency Ethereum is seen in front of a stock graph and U.S. dollar in this illustration taken, January 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

The BoC would be willing to cut interest rates three times ahead of the Fed first move, according to a Reuters poll.

The New Zealand dollar fell 0.03% to $0.6103, before the Reserve Bank of New Zealand policy meeting which is expected to hold its key interest rate at 5.50% on Wednesday.

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Forex

EUR/USD rally expected to persist, says BofA

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Bank of America (BofA) analysts provided insights into currency market trends, noting a significant rally in the pair last week. The surge was attributed to a subdued US Consumer Price Index (CPI) report. BofA’s signals indicate that the upward trend for the euro against the US dollar is likely to continue.

The bank’s analysis pointed to option flows that show a sustained demand for USD puts, suggesting that investors are betting on a weaker dollar. Additionally, BofA’s technical matrix revealed signals of a continuing downtrend for the USD when compared to major currencies such as the euro (EUR), the British pound (GBP), and the New Zealand dollar (NZD).

Despite the positive trend for the EURUSD, BofA cautioned that the momentum seen in the risk rally might not be as strong moving forward. The analysts observed that the (DXY), which measures the dollar’s strength against a basket of currencies, managed to close above its 200-day Simple Moving Average (SMA), an indication of a potential slowing in the dollar’s decline.

Furthermore, BofA’s economists have noted an absence of significant market-moving events from US economic data expected this week. Without new bearish catalysts for the USD, the currency’s downtrend might not maintain the same pace as observed last week.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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