Forex

Dollar eases as market shrugs off inflation revision data

Published

8 months ago

February 12, 2024

Dollar eases as market shrugs off inflation revision data

By Herbert Lash and Amanda Cooper

NEW YORK/LONDON (Reuters) -The dollar eased on Friday as it headed for a fourth week of gains while traders reduced their bets on how quickly the Bank of Japan might raise interest rates and how soon the Federal Reserve will cut them.

Traders shrugged off revised U.S. monthly consumer prices that rose less than initially estimated in December. While underlying inflation remained a bit warm, the mixed picture did not alter the market’s outlook on the timing of Fed rate cuts.

The annual revisions published by the Labor Department also showed the consumer price index (CPI) increasing slightly more than previously reported in October and November.

“The revisions aren’t going to make the Fed cut rates,” said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC in New York.

“The market’s in a rush, (but) the Fed is sitting there saying we’re not in a rush. Actually, things are really pretty good from their perspective,” he said.

The fell 0.07% to 104.04, while the euro was up 0.08% to $1.0785.

The widely anticipated revisions are more for economists and are too small to matter to the market, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“We’ve had a big move this week and I think they were just consolidating in the FX market,” he said. “The market last year got too aggressive about how far the Fed’s going to cut and when they’re going to begin.”

Fed officials this week again signaled the U.S. central bank has no pressing need to cut rates. The message gave the dollar an extra tailwind that pushed the yen to a 10-week low as traders reduced bets on how quickly the Bank of Japan (BOJ) might raise rates.

BOJ Governor Kazuo Ueda said on Friday there was a high chance for easy monetary conditions to persist even after the central bank ends its negative interest rate policy, which the market expects to happen as early as next month.

The yen was little changed at 149.32 per dollar after trading at 149.575 earlier, its weakest since Nov. 27. It is heading for about a 0.64% slide this week, having fallen in value in five out of the last six weeks.

Japanese Finance Minister Shunichi Suzuki said he was “watching FX moves carefully,” uttering a well-worn phrase for the first time since Jan. 19. Traders were unfazed by the warning.

The next major scheduled U.S. data release is CPI for January on Tuesday.

Traders have all but ruled out a cut at the Fed’s next policy meeting in March, versus a chance of 65.9% a month ago, according to CME Group’s (NASDAQ:) FedWatch Tool. It shows around a 60% chance of a cut by the Fed at its May meeting.

Sterling rose 0.15% to $1.2635. Both the euro and the pound have been relatively resilient this week, with officials from the European Central Bank and Bank of England pushing back against market wagers on early rate reductions.

The Swiss franc weakened to 0.8747, with the dollar up about 0.93% on the safe haven currency this week as traders digested data suggesting the Swiss National Bank could be intervening in markets to weaken the franc.

rose 4.9% to $47,549.00, after earlier hitting a high of $48,183.

Forex

US dollar gains as US election draws nearer – UBS

Published

14 hours ago

October 17, 2024

Investing.com – The US dollar has gained more ground as the US presidential election draws near, UBS noted, with the market seeing rising odds of a win for Republican candidate Donald Trump.

A new USD-positive over the past week has been media reports of somewhat better outlook for Donald Trump in the latest polls, as outcomes that allow for policies such as more aggressive tariffs are viewed as more USD positive.

“Higher odds of a Trump presidency are likely to be associated with a stronger USD near term,” said analysts at UBS, in a note dated Oct. 16.

Where does this leave us now with our USD views?

Our expected ranges between Sep–Dec 2024 incorporated the possibility of a material USD rebound between now and year end, even if our year-end forecasts see a modestly lower USD from current levels.

Last week, with an eye to our year end forecast, we entered a long call reverse knockout, but we are not willing to implement a similar trade yet for and .

The spot is still far enough from our range extremes and high JPY implied volatility and negative carry make long JPY positions unattractive so close to US elections.

Turning to this week’s ECB meeting, the market is very confident that another 25bp rate cut will be delivered and we do not have a strong reason to disagree.

Market expectations are very muted for any form of surprise, and risk reversal skews bid again for EUR puts point to a market that is already primed for the risk of EUR softness.

With market pricing in line with our economists’ terminal rate expectations, we see EUR/USD as more exposed to US developments near-term, leaving us reluctant to fade recent softness on ECB reasons alone.

At 06:30 ET (10:30 GMT), EUR/USD rose 0.1% to 1.0894, USD/JPY gained 0.1% to 149.34 and AUD/USD fell 0.2% to 0.6685.

Forex

Sell euro rallies around the ECB meeting – Citi

Published

14 hours ago

October 17, 2024

Investing.com – The European Central Bank holds its latest policy-setting meeting later this week, and Citigroup advises selling any rallies in the euro around this key event.

Markets are pricing in around 49 basis points of easing over the remaining two ECB meetings this year, which could limit dovish repricing around Thursday’s event, according to analysts at Citi, in a note dated Oct. 15.

“We see scope for a tactical bounce in EUR around this Thursday’s ECB meeting, which we like fading into November as US election risk premium materializes,” Citi said.

That said, “we like fading any subsequent rallies in EUR as we approach November and US election risk premium gets better priced.”

There is some evidence of this unfolding, the bank added, as EUR looks undervalued on its short-term fair value model and as Citi’s FX Positioning data suggests adding to EUR shorts.

“But our broader FX election basket still screens as undervalued relative to Trump betting markets, and we remain short EURUSD in both spot and options,” says Citi. “We would look to sell any retest of the 1.10 double top neckline — any break above there risks a move towards our adjusted stop of 1.1050, but if that resistance holds, we have higher conviction of a move towards our (and the double top) target of 1.08, with potential overshoot towards 1.07.”

At 05:25 ET (09:25 GMT), traded largely flat at 1.0892, almost 2% lower over the last month.

Forex

Dollar gains on trimmed rate expectations; sterling weakens post inflation

Published

14 hours ago

October 17, 2024

Investing.com – The U.S. dollar edged higher Wednesday, trading near two-month peaks on expectations of modest rate cuts from the Federal Reserve this year, while sterling slumped after benign inflation data.

At 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 103.180, remaining close to Monday’s two-month peak.

Dollar helped by trimmed rate cut expectations

Recent data indicating a resilient economy coupled with slightly hotter-than-expected inflation in September have led market participants to trim bets for an aggressive U.S. rate reduction.

Adding to these expectations were comments from Atlanta Federal Reserve President on Tuesday, who said he had penciled in just one more interest rate reduction of 25 basis points this year when he updated his projections for last month’s U.S. central bank meeting.

Most market participants see two more cuts this year, totaling 50 bps, and traders currently lay 92% odds for a 25-basis-point cut when the Fed next decides policy on Nov. 7, with an 8% probability of no change, according to CME Group’s (NASDAQ:) FedWatch Tool.

Sterling slumps after inflation release

In Europe, slumped 0.5% to 1.3003, after data showed British inflation fell more than expected in September, paving the way for a rate cut next month.

The UK’s fell to 1.7% on an annual basis, below the forecast 1.9% and the 2.2% recorded a month earlier.

This was the first time it had fallen below the Bank of England’s 2% target since April 2021, and added to data seen earlier in the week that showed British pay grew at its slowest pace in more than two years.

“The data is unequivocally dovish for the Bank of England and paves the way for rate cuts at the two remaining meetings this year (November and December),” said analysts at ING, in a note.

“Given the comments by Governor Andrew Bailey earlier this month suggesting the BoE could increase the pace of easing, markets may be tempted to price in some chance of a 50bp rate cut in November.”

traded 0.1% lower to 1.0882, ahead of Thursday’s policy-setting meeting by the European Central Bank.

The has already lowered rates twice this year and a cut to the 3.5% deposit rate this week is almost fully priced in by financial markets.

“EUR/USD is predominantly driven by external factors. The substantial drop in oil prices has narrowed the scope for a further drop based on market factors, but we continue to suspect that pre-US election positioning should favor a weaker EUR/USD,” said ING.

Yuan nurses weekly losses

fell slightly to 7.1179, with the yuan nursing losses this week as sentiment soured over the country’s plans for more stimulus.

China’s Ministry of Finance said it will enact a slew of fiscal measures to boost growth, but did not specify the timing or size of the planned measures, spurring uncertainty over its effectiveness.

rose 0.2% to 149.43, with the pair climbing closer to the 150 resistance level.

data due later this week is expected to offer more cues on the Bank of Japan’s plans to hike rates further.