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Dollar edges higher; U.S. inflation is the week’s main focus

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Dollar edges higher; U.S. inflation is the week's main focus
© Reuters.

Investing.com – The U.S. dollar edged higher in early European trade Tuesday, reversing some of the previous session’s sharp losses as traders revised their positions before data showing a potential rise in U.S. inflation. 

At 03:10 ET (07:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 104.332, after falling 0.5% in the prior session, retreating from last week’s six-month high of 105.15.

U.S. inflation release the main focus

The focus of the foreign exchange market this week is squarely on U.S. due on Wednesday, which is expected to set the tone for a Federal Reserve meeting next week. 

The is widely expected to keep rates on hold in September, but signs that inflation is proving sticky could prompt another hike before the end of the year.

“The FOMC has already entered the pre-meeting blackout period, but the latest indications clearly pointed to a pause in September. Can inflation change policymakers’ minds? It would probably need to be a materially stronger than expected print, but from an FX perspective, expect the bullish pass-through to the dollar to be felt anyway,” said analysts at ING, in a note.

U.K. wage growth remains high

traded largely flat at 1.2505, as traders digested the latest U.K. employment data.

The U.K. rose to 4.3% in the three months to July from 4.2% a month earlier, its highest since the three months to September 2021, with the labor market showing signs of cooling.

However, were 7.8% higher than a year earlier in the three months to July – the joint-fastest rate since records began in 2001 – putting more pressure on the to tighten monetary policy further.

BOE policymaker Catherine Mann warned late Monday that it’s too soon to stop raising rates, and the central bank is widely expected to hike by another 25 basis points.

ECB policymakers have tricky decision

fell 0.1% to 1.0732, after came in as expected in August, rising 2.6% on an annual basis, a jump up from 2.3% the prior month.

The meets on Thursday, and having raised rates at each of its past nine meetings, policymakers are now debating whether to raise the deposit rate again, to 4%, or pause.

Inflation remains above target, but growth is slowing in the region, and the latest data, due later Tuesday, is expected to show a deterioration in confidence in the eurozone’s dominant economy.

Yen steadies after Ueda’s comments

rose 0.2% to 146.87, with the yen handing back some of the previous session’s outsized gains on the back of comments from Bank of Japan Governor Kazuo Ueda, who said that an end to the BOJ’s negative interest rates could be close. 

Such a scenario would bode well for the yen, but the currency is still nursing steep losses for the year, hit chiefly by a widening gap between local and international interest rates.

Chinese yuan steadies but economic growth doubts remain

rose 0.1% to 7.2924, with the yuan remaining above Friday’s 16-year low after China’s central bank rolled out a series of strong daily midpoints. 

That said, doubts remain over the strength of the country’s recovery from its COVID hit, with a Reuters poll now forecasting 2023 GDP growth of 5%. This is in line with China’s official forecast, but lower than forecasts from investment banks.

 

Forex

Dollar slips ahead of GDP data; euro rises and yen surges

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Investing.com – The U.S. dollar slipped lower Thursday, the euro posted small gains while the Japanese yen climbed to multi-month highs ahead of next week’s Bank of Japan meeting.  

At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.2% to 103.950, extending an overnight decline.

Dollar slips ahead of GDP data

The dollar retreated Thursday, extending an overnight decline amid increasing confidence that the will cut interest rates in September.

data for the second quarter are due later in the session, and is expected to show annualized growth of 2.0%.

This would be above the 1.4% growth seen in the first quarter, but would remain considerably slower than the 4.2% pace seen in the second half of last year.

The release will also show inflation slowed considerably last quarter, with the GDP price index falling to 2.6% from 3.1%, ahead of Friday’s price index data, the Federal Reserve’s favored gauge of inflation.

The Fed is set to meet next week, and is widely to keep interest rates steady while signaling a rate cut in September. 

German business morale falls again

In Europe, rose 0.1% to 1.0847, with the euro edging higher despite German business morale unexpectedly falling in July, the third consecutive decline in Germany’s most prominent leading indicator..

The Ifo institute said its sank to 87.0 in July from 88.6 in June.

“The German economy is stuck in the crisis,” said Ifo president Clemens Fuest.

The kept interest rates on hold at 3.75% last week, but markets are pricing in just short of two more ECB rate cuts for the rest of this year.

traded 0.2% lower at 1.2885, falling back from the 1.30 level ahead of next week’s Bank of England policy-setting meeting.

UBS expects the central bank to trim interest rates in what is widely seen as a close call as to when it will start what is likely to be a slow and steady reduction path.

Yen goes from strength to strength 

In Asia, fell 0.7% to 152.72, with the pair falling to its weakest level in 2-1/2 months as traders abandoned short yen bets in the run up to the BOJ’s July meeting in the wake of suspected currency market intervention by the Japanese government.

The is expected to consider a 10 basis point hike, and could unveil a plan to roughly halve bond purchases in coming years.

“USD/JPY has now corrected 6% off its high. This has proved another successful intervention campaign for Japanese authorities,” said analysts at ING, in a note. 

“We think the success of the intervention has had less to do with the size of the FX sales and more to do with the timing. As was the case in September/October 2022, Japanese FX intervention has been timed to coincide with a dovish reappraisal of Fed policy. Very clever.”

slipped 0.5% lower to 7.2281, but remained near an eight-month high amid persistent concerns over a slowing economic recovery in the country. Surprise rate cuts by the People’s Bank added to pressure on the currency and did little to lift spirits over the Chinese economy.

 

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Investors turn long on Singapore dollar after 7 months; bearish bets on Asian FX ease – Reuters poll

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By Roushni Nair

(Reuters) –

Investors turned bullish on the Singapore dollar for the first time since mid-December as the city-state’s growth and inflation dynamics continue to support the local unit, while bearish bets on most Asian currencies eased, a Reuters poll found on Thursday.

Long positions on the Singapore dollar were at their highest since early April 2023, while bearish bets on the Malaysian ringgit fell to levels seen in April last year, according to a fortnightly poll of 10 analysts.

The Monetary Authority of Singapore (MAS) does not seem to be in a hurry to ease policy settings after a core inflation reading of above 3% in May with growth in the second quarter coming in strong at 2.9%, according to analysts.

MAS will conclude its policy meeting on Friday, with analysts expecting the central bank to maintain its hawkish stance and hold on to its current policy settings even as inflation in June was at a two-year low.

“The strong data (growth and inflation) and the continued appreciation of the SNEER (Singapore dollar nominal effective exchange rate) make us continue to like the SGD on a relative-value basis and against low-yielders in the region,” analysts at Bank of America said in a note.

However, any spike in oil prices due to geopolitical events would exert upside pressure on Singapore dollar’s safe-haven status, they added.

Singapore is among the few countries in the world with a triple-A sovereign credit rating that is reflective of exceptionally strong fiscal and external balance sheets, factors that firm its position as a safe harbor for investors.

Meanwhile, markets have priced in a 100% chance of an interest rate cut by the U.S. Federal Reserve as early as September, with investors awaiting a slew of macroeconomic data, including second-quarter growth figures, to further validate their bets. [FEDWATCH]

Declining interest rates in the U.S. would take the shine off the dollar as it could lead to lower foreign investments while triggering a risk-on sentiment for emerging Asian currencies.

This has resulted in short bets on the Philippine peso and Thailand’s baht also easing significantly.

Bearish positions on the Chinese yuan and the Taiwanese dollar were at their highest since June 27.

Markets in Taiwan extended losses, pressured by statements from Washington last week that hinted at the possibility of tougher curbs for exports of advanced semiconductor technology to China.

Taiwan markets were closed for a second successive day because of bad weather.

The Asian currency positioning poll is focused on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht.

The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long U.S. dollars.

The figures include positions held through non-deliverable forwards (NDFs).

The survey findings are provided below (positions in U.S. dollar versus each currency):

DATE USD/SG USD/ID USD/IN USD/TH

D R R B

25-Jul-24 1.07 0.79 -0.33 0.35 0.86 0.12 0.39 0.43 0.02

11-Jul-24 1.05 0.87 0.06 0.73 0.68 0.22 1.03 0.86 0.51

27-Jun-24 1.34 1.28 0.80 1.49 0.88 0.46 1.00 1.37 0.91

13-Jun-24 0.95 0.87 0.62 1.22 0.64 0.37 1.00 1.23 0.92

30-May-24 1.05 0.72 0.33 0.94 0.53 0.00 0.81 1.19 1.00

16-May-24 1.05 0.96 0.35 0.96 1.02 0.39 1.23 1.29 1.00

2-May-24 1.25 1.61 0.89 1.39 1.40 0.49 1.46 1.44 1.39

18-Apr-24 1.25 1.59 0.80 1.32 1.24 0.43 1.42 1.19 1.28

© Reuters. FILE PHOTO: A Singapore dollar note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File photo

4-Apr-24 1.18 1.09 0.42 1.13 1.17 0.00 1.15 0.62 1.35

21-Mar-24 0.92 0.82 0.33 0.60 0.92 -0.54 1.12 0.47 1.13

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Forex

US dollar pares losses after economic data

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NEW YORK (Reuters) – The U.S. dollar trimmed losses on Thursday after data showed the the world’s largest economy expanded faster than expected and inflation slowed in the second quarter.

© Reuters. FILE PHOTO: U.S. Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

The greenback came off lows against the surging yen and was last down 0.4% at 153.16. It was at 152.68 yen before the data. The was slightly down at 104.32 after the data. It was at 104.21 just before.

Advance estimates showed that gross domestic product grew at a 2.8% annualized rate last quarter. Economists polled by Reuters had forecast GDP rising at a 2.0% rate.

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