Forex
Dollar edges higher but set for weekly loss; Fed’s Williams in spotlight
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Investing.com – The U.S. dollar edged higher in early European trade Friday, but remained on course for its steepest weekly decline since July after the Federal Reserve signaled rate cuts next year while central banks in Europe stuck to their hawkish paths.
At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 101.702, not far from the four-month low of 101.459 seen earlier Friday.
The index is down over 2% this week so far.
Fed’s dovish pivot hits the dollar
Both the and the expressed their desire to keep policy tight well into next year to combat inflation, as they kept interest rates unchanged on Thursday.
The ECB said policy easing was not even brought up in a two-day meeting, the BOE said rates would remain high for “an extended period.”
This contrasted with the Fed’s pivot towards rate cuts, and means that the dollar will remain out of favor as the year comes to an end.
“As the dust settles after a furious period for central bank meetings we are left to conclude that European policymakers have chosen to push back more than the Fed when it comes to what the market prices for 2024 rate cuts,” said analysts at ING, in a note.
There’s more U.S. economic data to digest later in the session, including November and production as well as S&P numbers, but most focus will be on a speech by Fed policymaker , as the market looks for confirmation that the debate has moved on to the timing of the first rate cut.
“Should Williams mention rate cuts, we suspect the dollar will stay on the soft side today,” ING added.
Euro, sterling fall back from recent highs
fell 0.3% to 1.0953, just below 1.1009, a two-week high it touched on Thursday, after PMI data showed that deteriorated in December, increasing the likelihood of a recession in Europe’s biggest economy at the end of the year.
Still, while the ECB’s next move should be a lowering of interest rates from record highs the central bank should “enjoy the view” for a while, French central bank chief Francois Villeroy de Galhau said on Friday, implying a rate cut was not imminent.
fell 0.2% to 1.2747, with sterling having surged 1.1% to a four-month peak on Thursday after BoE’s hawkish tilt.
“Of the recent central bank meetings, the Bank of England probably offered the most pushback against dovish expectations,” said ING. “There was nothing in their statement to encourage dovish expectations for 2024.”
Yen steadies ahead of next week’s BOJ meeting
In Asia, traded 0.1% lower to 141.75, with the Japanese yen steadied near a four-month high to the dollar, having appreciated sharply against the greenback in recent sessions.
But further gains in the yen were uncertain, with the expected to maintain its ultra-dovish stance in its final meeting for the year next week.
traded 0.1% lower at 7.1035, after the People’s Bank of China injected 1.45 trillion yuan ($200 billion) into the economy through its medium-term lending facility.
Economic data also offered some positive cues on China. grew more than expected in November, although and fixed asset investment missed expectations.
rose 0.3% to 0.6717, as the Aussie dollar, a major indicator of Asian risk sentiment, rose to an over four-month high.
Investing.com – The US dollar rose in thin holiday-impacted trade Tuesday, retaining recent strength as traders prepared for fewer Federal Reserve rate cuts in 2025.
At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 107.905, near the recently hit two-year high.
Dollar remains in demand
The dollar has been in demand since the Federal Reserve outlined a hawkish outlook for its interest rates after its last policy meeting of the year last week, projecting just two 25 bp rate cuts in 2025.
In fact, markets are now pricing in just about 35 basis points of easing for 2025, which has in turn sent US Treasury yields surging, boosting the dollar.
The two-year Treasury yield last stood at 4.34%, while the benchmark 10-year yield steadied near a seven-month high at 4.59%.
“We think this hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year,” said analysts at ING,in a note.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Euro near to two-year low
In Europe, fell 0.1% to 1.0396, near a two-year low, with the set to cut interest rates more rapidly than its US rival as the eurozone struggles to record any growth.
The ECB lowered its key rate earlier this month for the fourth time this year, and President Christine Lagarde said earlier this week that the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“If the incoming data continue to confirm our baseline, the direction of travel is clear and we expect to lower interest rates further,” Lagarde said in a speech in Vilnius.
Inflation in the eurozone was 2.3% last month and the ECB expects it to settle at its 2% target next year.
traded largely flat at 1.2531, with sterling showing signs of weakness after data showed that Britain’s economy failed to grow in the third quarter, and with Bank of England policymakers voting 6-3 to keep interest rates on hold last week, a more dovish split than expected.
Bank of Japan stance in focus
In Asia, fell 0.1% to 157.03, after rising as high as 158 yen in recent sessions, after the signaled that it will take its time to consider more interest rate hikes.
edged 0.1% higher to 7.3021, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
Investing.com– Most Asian currencies moved in a tight range on Tuesday, while the dollar extended overnight gains as traders positioned for a slower pace of interest rate cuts in the coming year.
Trading volumes were muted before the Christmas break, while most regional currencies were nursing steep losses against the greenback for the year.
Asian currencies weakened sharply last week after the Federal Reserve effectively halved its outlook for rate cuts in 2025, citing concerns over sticky U.S. inflation.
Dollar near 2-year high on hawkish rate outlook
The and both rose about 0.1% in Asian trade, extending overnight gains and coming back in sight of a two-year high hit last week.
While the greenback did see some weakness after data read lower than expected for November, this was largely offset by traders dialing back expectations for interest rate cuts in 2025.
The Fed signaled only two rate cuts in the coming year, less than prior forecasts of four.
Higher U.S. rates diminish the appeal of risk-driven Asian markets, limiting the amount of capital flowing into the region and pressuring regional markets.
Asia FX pressured by sticky US rate outlook
Most Asian currencies weakened in recent sessions on the prospect of slower rate cuts in the U.S., while uncertainty over local monetary policy and slowing economic growth also weighed.
The Japanese yen’s pair fell 0.1% on Tuesday after rising as high as 158 yen in recent sessions, after the Bank of Japan signaled that it will take its time to consider more interest rate hikes.
The Australian dollar’s pair fell 0.2% after the minutes of the Reserve Bank’s December meeting showed policymakers saw an eventual easing in monetary policy, citing some progress in bringing down inflation. But they still flagged potential upside risks for inflation.
The Chinese yuan’s pair rose 0.1% and remained close to a one-year high, as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
The Singapore dollar’s pair rose 0.1%, while the Indian rupee’s pair rose 0.1% after hitting record highs above 85 rupees.
Investing.com — The dollar has surged past its post-2022 range, buoyed by U.S. economic exceptionalism, a widening interest rate gap, and elevated tariffs, setting the stage for further gains next year.
“Our base case is that the dollar will make some further headway next year as the US continues to outperform, the interest rate gap between the US and other G10 economies widens a little further, and the Trump administration brings in higher US tariffs,” Capital Economics said in a recent note.
The bullish outlook on the greenback comes in the wake of the dollar breaking above its post-2022 trading range, reflecting renewed confidence among investors driven by robust U.S. economic data and policy expectations.
A key risk to the upside call on the dollar is a potential economic rebound in the rest of the world, similar to what occurred in 2016, Capital Economics noted.
Following the 2016 U.S. election, economic activity in the rest of the world rebounded, while Trump’s tax cuts didn’t materialize until the end of 2017, and the Fed took a more dovish path than discounted, resulting in a 10% drop in the DXY on the year, which was its “worst calendar year performance in the past two decades,” it added.
While expectations for a recovery in Europe and Asia seem far off, a positive surprise for global growth “should be ruled out”, Capital Economics said.
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