Forex

Dollar edges higher ahead of key CPI release

Published

5 months ago

August 12, 2024

Investing.com – The U.S. dollar edged higher Monday, in calm trading with traders looking to the release of key inflation data later in the week for clues of future Federal Reserve monetary policy decisions.

At 04:30 ET (09:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 103.017, steadying after last week’s wild swings.

Dollar edges higher ahead of CPI

The dollar received a boost late last week after stronger-than-expected weekly data led traders to pare bets for Federal Reserve interest rate cuts this year.

The greenback had struggled at the start of the week, driven by worries over the U.S. economy and the Bank of Japan’s hawkishness.

Fed fund futures imply a 49% chance of a half-point rate cut in September, after climbing as high as 100% at one point last week.

This uncertainty leaves markets highly vulnerable to data and events, with the U.S. consumer price index on Wednesday looming particularly large.

July data is expected to show that that inflation continued to edge closer to the Fed’s 2% annual target, with forecasts tipping annual core inflation to fall a tick to 3.2%, the lowest since April 2021.

“Will July PPI data (Tuesday) and CPI data (Wednesday) continue to provide confidence to the Fed that inflation is under control and allow the easing cycle to start in September? Most think the answer to that question is yes,” said analysts at ING, in a note.

Sterling awaits inflation data

In Europe, edged higher to 1.0920, not far removed from last week’s 1.1009 peak, the highest level for the pair since Jan. 2.

The pair has seen calm trading at the start of the week, with the eurozone data calendar very quiet this week and little in the way of European Central Bank speakers scheduled.

This leaves the market to focus on the first revision to the second quarter eurozone GDP data.

The started cutting interest rates in June, and many expect the policymakers to agree to another reduction in September.

traded flat at 1.2759 at the start of a busy U.K. economic data calendar this week, as investors look for clues as to whether the Bank of England will continue its rate-cutting cycle next month.

The BoE cut rates for the first time since 2020 at the start of this month and markets are currently pricing in a roughly 33% chance of another quarter point cut at its September meeting.

Data on wage growth is due out on Tuesday, followed a day later by figures, which will be closely watched for indications of lingering price pressures.

Yen drifts lower

In Asia, rose 0.4% to 147.25, pulling back further from a stellar rally over the past month.

Anticipation of economic readings and central bank meetings from across Asia kept traders on edge, while a Japanese holiday drained volumes.

climbed 0.2% to 7.1811, with the yuan slowly retreating.

While major losses in the yuan have been stemmed by persistent support from the People’s Bank, skepticism over China’s economy kept traders mostly short on the currency.

Focus this week is on Chinese and data, for more cues on the country’s biggest economic engines.

Forex

UBS rises its USD/JPY forecast

Published

10 hours ago

January 17, 2025

UBS revised its inflation forecast for Japan, projecting higher inflation rates in the coming years due to a robust US dollar and increased energy prices.

The UBS FX team adjusted their foreign exchange outlook, now expecting the exchange rate to hit 150 by the end of 2025, up from the previous estimate of 145. This adjustment is based on the backdrop of a strong US dollar.

The revised forecast anticipates a 0.1-0.2 percentage point increase in inflation for 2025 and 2026, driven by higher energy costs and consumer price index (CPI) goods. The core-core CPI, which excludes volatile fresh food and energy prices, is projected to remain above 2% through 2025.

UBS now expects it to reach 2.0% year-over-year at the end of 2025, a slight uptick from the previous estimate of 1.9%. UBS also highlighted that food inflation, currently at 4.2% year-over-year, is expected to stay at similar levels at least through the first half of the current year. This is attributed to the yen’s depreciation and unstable supply conditions.

The research firm notes that while service inflation has been relatively low at 1.5%, particularly due to weak housing rent and public services prices, an acceleration in overall service inflation is anticipated.

However, the development of inflation in specific service components, such as housing rent and public services, which respectively account for 37% and 25% of the weight in services within the inflation calculation, remains uncertain. U

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

Forex

Bank of America flags dollar longs as crowded, eyes global inflation concerns

Published

10 hours ago

January 17, 2025

Bank of America (BofA) analysts highlighted a shift in market sentiment, identifying long U.S. dollar positions as the most crowded trade, and now a significant headwind for the currency. This perspective aligns with BofA’s recent reports on the U.S. dollar, emphasizing the stark contrast between current market positions and historical trends.

The analysts’ findings indicate a growing apprehension among market participants regarding global inflation, particularly with a re-acceleration anticipated by 2025. Euro Area inflation expectations are notably visible, underscoring the broader concerns about inflationary pressures.

Additionally, while emerging market (EM) investors seem to have discounted the worst-case scenarios related to tariffs, the uptick in sentiment is perceived as tentative. The cautious stance of EM investors reflects the uncertainty and challenges in the global trade environment.

BofA’s analysis suggests that the heavy positioning in favor of the U.S. dollar could be problematic. The report, dated January 14, 2025, points out that the extent of USD long positions is exceptional not only in a historical context but also when compared to the past year’s trends.

Furthermore, the discrepancy between conviction and positioning is evident, as only a fifth of respondents consider long USD their highest conviction trade. This is despite 42% of those surveyed expecting the peak of 10-year U.S. Treasury yields to exceed 5%, as revealed in a separate exhibit from the bank’s research.

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

Forex

Dollar set for losing week; sterling falls further after retail sales

Published

10 hours ago

January 17, 2025

Investing.com – The US dollar edged higher Friday, but was on course for a weekly loss after core inflation eased, while sterling retreated following the release of weak retail sales data.

At 04:30 ET (09:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 108.930, but was set for a drop of about 0.5% in the week, which would snap a six-week winning streak.

Dollar set for weekly loss

The dollar has retreated this week after cooler than expected data raised the possibility of easier monetary policy this year, even after policymakers at the Federal Reserve indicated they would be cautious in its approach to cutting rates this year.

Fed Governor said on Thursday three or four rate cuts are still possible if economic data weakens further.

“The perception at the end of a busy week in macro news is that the optimism around a month-on-month slowdown in core inflation is cautious at best,” analysts at ING said, in a note.

“The inherently forward-looking markets are factoring in Trump’s inflationary policies from a starting point that is already significantly above the target. So, despite stretched positioning and short-term overvaluation, the dollar continues to dodge true catalysts for a correction.”

Sterling falls after retail sales dip

In Europe, traded 0.4% lower to 1.2197, after British fell unexpectedly in December, dropping by 0.3% in month-on-month terms in December after a downwardly revised 0.1% expansion in November, raising the risk of an economic contraction in the fourth quarter.

Data released earlier in the week showed that the British economy barely returned to growth in November.

The is expected to cut interest rates in February, with two rate cuts in 2025 largely priced into the market.

fell slightly to 1.0300, ahead of the release of the final eurozone for December.

“EUR/USD appears to have found a short-term anchor at the 1.0300 handle. That is a level that embeds a 2.5-3% risk premium (i.e. undervaluation), which we suspect will not be materially trimmed until more clarity on Trump’s protectionism policy emerges,” ING added.

Yen nears one-month high

In Asia, climbed 0.3% to 155.79, near its strongest level in nearly one month.

The yen firmed sharply this week as several Bank of Japan officials suggested that an interest rate hike was possible when the central bank meets next week.

traded 0.1% lower to 7.3289, after hitting an over one-year high this week.

China’s grew 5.4% in the fourth quarter, more than expectations of 5%, as a barrage of recent stimulus measures bore fruit.