Forex

Dollar eases after strong labor market reports

Published

2 years ago

July 9, 2023

Dollar eases after strong labor market reports

By Herbert Lash

NEW YORK (Reuters) -The dollar eased after a brief rebound on Thursday as data showing the U.S. labor market remains strong increased chances the Federal Reserve will raise interest rates later this month.

Private payrolls surged in June in the biggest rise since February 2022, an ADP National Employment report showed, while the number of Americans filing new claims for unemployment benefits rose moderately last week, the Labor Department said.

Later, a survey by the Institute for Supply Management (ISM) showed the U.S. services sector grew faster than expected in June as new orders picked up, adding to data indicating a resilient economy in the face of tighter monetary policy.

“This strong data today has a lot more of a ‘good news is bad news’ type feel to it,” said Brian Daingerfield, head of G10 FX strategy at NatWest Markets in Stamford, Connecticut.

“Take it together with how equity markets have responded, that gives a clear picture of the dollar today. Call it a risk-off style move, where the Fed is going to be tightening more and that has negative repercussions for risk.”

Futures markets raised the probability of the Fed hiking interest rates by 25 basis points to 92.4% when policymakers conclude a two-day meeting on July 26, the CME Group’s (NASDAQ:) FedWatch Tool showed.

The yield on two-year Treasuries rose above 5% to their highest in 16 years, while U.S. stocks tumbled on the outlook that rates will stay higher for longer.

The , measuring the U.S. currency against six others including the euro and Japan’s yen, fell 0.18% to 103.13.

ISM showed a measure of prices paid by businesses fell to more than a three-year low, suggesting inflation would continue to cool, but Fed officials again signaled higher rates ahead.

Dallas Fed President Lorie Logan said she was very concerned “whether inflation will return to target in a sustainable and timely way.”

The major central banks for the most part are fine-tuning monetary policy, and it is unclear when they will act as they alternate between hiking and pausing interest rates, said Brad Bechtel, global head of FX at Jefferies.

“Given all these central banks are more or less in the same place in some way, shape or form, the dollar’s going have a hard time” moving too much one way or the other, he said.

The safe-haven Japanese yen strengthened 0.39% versus the greenback at 144.09 as concerns about the global growth outlook, resulting from the aggressive monetary tightening by major central banks, weighed on risk appetite.

ONE DIMENSIONAL

The pound hit two-week highs against the euro and dollar as financial markets bet the Bank of England will raise rates to 6.5% early next year, pushing the yield on the two-year UK government bond to its highest since June 2008.

“The FX market is taking more of a ‘one-dimensional approach’ to trading the British disease,” said Stephen Gallo, global FX strategist at BMO Capital Markets.

“Instead of selling GBP in anticipation of an economic slowdown, it is buying GBP on the basis of interest rate differentials,” Gallo said.

The last traded down slightly at 7.2575 per dollar in the offshore market, a day after falling about 0.4%. The central bank set a stronger-than-expected midpoint fixing for the fourth straight day this week, which traders believe is an attempt to prevent the yuan from weakening too fast and too far. [CNY/]

hit a 13-month high of $31,500, continuing to find support due to recent plans by fund managers to launch a U.S.-listed spot bitcoin exchange-traded fund (ETF).

Currency bid prices at 3:37 p.m. (1937 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.1300 103.3400 -0.18% -0.348% +103.5700 +102.9100

Euro/Dollar $1.0884 $1.0853 +0.29% +1.58% +$1.0901 +$1.0834

Dollar/Yen 144.0850 144.6650 -0.39% +9.91% +144.6500 +143.5600

Euro/Yen 156.82 157.00 -0.11% +11.77% +157.0600 +155.8500

Dollar/Swiss 0.8957 0.8988 -0.32% -3.10% +0.8997 +0.8951

Sterling/Dollar $1.2740 $1.2703 +0.30% +5.35% +$1.2780 +$1.2674

Dollar/Canadian 1.3364 1.3285 +0.60% -1.36% +1.3370 +1.3276

Aussie/Dollar $0.6625 $0.6654 -0.41% -2.79% +$0.6688 +$0.6599

Euro/Swiss 0.9747 0.9755 -0.08% -1.50% +0.9766 +0.9738

Euro/Sterling 0.8543 0.8542 +0.01% -3.40% +0.8563 +0.8521

NZ Dollar/Dollar $0.6158 $0.6179 -0.31% -2.98% +$0.6219 +$0.6133

Dollar/Norway 10.7670 10.6820 +0.81% +9.73% +10.8250 +10.6520

Euro/Norway 11.7224 11.5894 +1.15% +11.71% +11.7392 +11.5690

Dollar/Sweden 10.9433 10.9373 +0.36% +5.15% +10.9906 +10.9223

Euro/Sweden 11.9064 11.8636 +0.36% +6.79% +11.9409 +11.8712

Forex

Japanese yen subdued despite BOJ deputy governor’s rate hike hint

Published

8 hours ago

January 14, 2025

Investing.com– The Japanese yen exhibited minimal movement on Tuesday, despite Bank of Japan (BOJ) Deputy Governor Ryozo Himino indicating a potential hike in the upcoming policy meeting.

Himino suggested that the central bank might consider raising rates, citing sustained wage growth and expectations of a clearer U.S. policy landscape following President-elect Donald Trump’s inaugural address later this month.

The yen’s pair edged 0.1% higher to 157.62 yen on Tuesday.

In recent months, the BOJ has been adjusting its monetary policy to address rising inflation. In March last year, it ended its negative interest rate policy, and by July, it had increased the short-term policy rate to 0.25%.

These measures aim to achieve a stable 2% inflation target, supported by robust wage growth and a weakening yen, which have contributed to higher import costs.

Despite these developments, the yen’s exchange rate against the U.S. dollar remained relatively stable, reflecting market skepticism about the likelihood of an imminent rate hike.

Analysts suggest that while the BOJ is signaling a shift towards policy normalization, uncertainties surrounding global economic conditions and domestic wage dynamics may lead to a cautious approach.

Barclays (LON:) expects the central bank to implement rate hikes in March and October, with a terminal rate of 0.75%.

The BOJ’s next policy meeting is scheduled for January 23-24, where new growth and price projections will be discussed.

Forex

UBS notes hedge funds sell GBP amid UK fiscal worries

Published

8 hours ago

January 14, 2025

Forex

US dollar to stay stronger for longer, UBS says

Published

8 hours ago

January 14, 2025

Investing.com — UBS strategists expect the US dollar “to stay stronger for longer,” citing robust US economic activity and ongoing tariff concerns impacting other regions.

Monday saw the (DXY) soar to its highest level since November 2022, trading above the 110 mark during the session. This represents a roughly 9% appreciation since late September.

The US dollar’s recent strength has been bolstered by better-than-expected domestic data, including nonfarm payrolls and the services sector purchasing managers’ index. These positive indicators have led to a decrease in the anticipated number of Federal Reserve rate cuts this year, with the consequent rise in US yields lending broad support to the USD.

While US economic data is expected to remain solid in the near term, the outlook for Europe is less optimistic, with subdued growth prospects.

Although growth in China is forecasted to accelerate to 5% year-over-year for the fourth quarter, the threat of US tariffs poses a significant risk. Political and economic uncertainties in South Korea, the European Union, and the UK have been linked to weakness in their respective currencies.

According to UBS, potential monetary policy divergence is among the key factors that could further propel the dollar upward in the near term.

While the Fed is expected to cut rates by a total of 50 basis points in the second and third quarters, the European Central Bank is projected to reduce rates by 100 basis points in the first half of the year.

“Policy divergence is a powerful driver of currencies, which leads to trending FX markets and the potential for overshooting exchange rates,” strategists led by Mark Haefele wrote.

The firm also points out that tariff risks may not be fully accounted for in the current USD valuation. Despite the dollar’s recent rally being largely attributed to solid US macroeconomic data, the introduction of new tariffs could drive the dollar even higher.

UBS suggests that if tariffs are implemented, the DXY could trade between 110 and 115, with significant impacts on other major currency pairs.

“If tariffs were to materialize, DXY could trade in a 110-115 range, could drop below parity, could slide below 1.20, and could move toward 0.94, in our view,” strategists noted.

However, the investment bank believes that the story of 2025 could be a tale of two halves, with the dollar strength in the first half of the year potentially reversing in the second half.

The current trading position of the USD, which is considered strongly overvalued and shows the highest level of dollar net length since 2015, supports this view.

UBS’s revised forecasts for the EUR/USD pair reflect this expected trajectory. Strategists expect the pair to trade at 1.00 in March, 1.02 in June, and 1.06 in December 2025.

In the case of China, despite the possibility of dramatically higher effective tariff rates, the CNY has only partially priced in this risk, with UBS reiterating its forecast for the to reach 7.50 by June.