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Forex

Dollar edges lower, but on course for eighth straight winning week

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Dollar edges lower, but on course for eighth straight winning week
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Investing.com – The U.S. dollar edged lower in early European trade Friday, but remains on track for an eighth straight winning week as U.S. economic resilience brings further Federal Reserve rate hikes into question. 

At 03:10 ET (07:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 104.807, but remains not far from the previous session’s six-month high of 105.15.

Further Fed rate hikes ahead?

Data released this week has painted an upbeat picture of the U.S. economy, as the unexpectedly gained steam in August while hit their lowest level since February.

The is still widely expected to hold steady on rates when it meets later this month, but this economic resilience is creating uncertainty about what the Fed might do later this year. 

Dallas Federal Reserve Bank President said on Thursday that while “forecasts are inherently uncertain. My base case, though, is that there is work left to do,” 

Her colleague, Federal Reserve Bank of New York President on Thursday said of the current setting of monetary policy, “it’s pretty clear we’re restrictive” but it’s “still an open question as we go forward.”

European economies struggle

By contrast, the economic news out of Europe has been generally more depressing. 

in the eurozone grew just 0.1% in the second quarter compared to the previous three months, with the dominant German manufacturing sector struggling badly.

There was some good news Friday as grew 0.8% on the month in July, substantially better than the 0.1% growth expected and the prior month’s drop of 0.9%.

The has raised rates at each of its past nine meetings, but the region’s economic slowdown is pointing to a pause next week even if inflation remains elevated.

rose 0.2% to 1.0715, recovering to a degree having fallen to a three-month low of 1.0686 on Thursday, while rose 0.1% to 1.2483, having also hit a three-month low the previous session.

Chinese yuan falls to lowest level since 2008

In Asia, rose 0.3% to 7.3487, with the yuan slipping to its weakest level against the dollar since February 2008, weighed by rising diplomatic tensions between Beijing and Washington as well as concerns over a Chinese economic slowdown.

traded lower at 147.28, with the yen near a 10-month low after the Japanese government downgraded its initial growth estimate for second quarter .

 

Forex

Dollar higher on US business activity boost

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By Saqib Iqbal Ahmed

NEW YORK (Reuters) -The dollar rose against the euro on Thursday after data showed U.S. business activity accelerated to the highest level in just over two years in May, suggesting that economic growth picked up half-way through the second quarter.

S&P Global said that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, jumped to 54.4 this month. That was the highest level since April 2022 and followed a final reading of 51.3 in April.

A reading above 50 indicates expansion in the private sector.

“The currency action shows the market still responds to strong U.S. economic data in the expected way,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.

“I think the dollar has some more room on the upside,” Chandler said.

Data on Thursday also showed the number of Americans filing new claims for unemployment benefits fell last week, pointing to underlying strength in the labour market that should continue to support the economy.

Federal Reserve officials at their last policy meeting said they still had faith that price pressures would ease at least slowly in coming months, but doubts emerged about whether the current level of interest rates was high enough to guarantee that outcome and “various” officials said they’d be willing to hike borrowing costs again if inflation surged.

“Given the FOMC comments the market is still exaggerating the chances of two rate cuts this year,” Chandler said, noting that the unwinding of rate cut bets would keep the dollar supported in the near term.

The euro was down 0.2% at $1.080525. The common currency rose as high as $1.0861 earlier in the session after the preliminary composite Purchasing Managers’ Index for the currency bloc came in above the 50 level separating growth from contraction for the third month in a row, with even struggling manufacturing showing a recovery.

Better-than-feared economic data for the past few months helped the euro rally in April and early May, and Thursday’s data pushed the currency back towards mid-May’s two-month high of $1.0895.

“The EU PMI figures took a little pressure off of the stagflation theme, but it still feels a little stagflation ‘lite’ if you will, and we need to see more on the growth side there,” Brad Bechtel, global head of FX at Jefferies, said in a note.

The pound slipped 0.2% to $1.2689 against the dollar. Prime Minister Rishi Sunak on Wednesday called a national election, which his Conservatives are widely expected to lose to the opposition Labour Party after 14 years in power. However, sterling options volatility for the period covering the July 4 election did rise. [GBP/]

“The market is fairly confident there’s going to be a Labour government and it’s pretty confident also that the Labour government won’t be that different in terms of fiscal policy, than the current Sunak and (finance minister Jeremy) Hunt mix anyway,” said Jane Foley, head of FX strategy at Rabobank.

The dollar was 0.1% higher against the Japanese currency at 156.91 yen after data showed Japan’s factory activity crept into expansion for the first time in a year in May.

The corporate sector in Japan has been grappling with the weak yen, and nearly half of Japanese firms find the yen’s slide beyond 155 to the dollar harmful to their business, roughly double the percentage of those who see the currency’s weakness as a positive, a Reuters survey showed on Thursday.

The New Zealand dollar slipped 0.1% to $0.60925after data released Thursday showed that retail sales volumes in New Zealand unexpectedly rose, its second day of gains after the Reserve Bank of New Zealand surprised markets on Wednesday by lifting its forecasts for peak interest rates and pushing back when it expects to cut. {AUD/]

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

Among cryptocurrencies, ether was up 1% at $3,776, after rising as high as $3945.50 its highest since mid-March.

It has been surging amid speculation over the potential approval of U.S. spot exchange-traded funds that would track the world’s second-biggest cryptocurrency.

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Forex

UBS suggests shorting USD/CHF amid DXY pullback and data woes

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UBS recommended investors to short the pair, indicating attractive entry levels for the trade. The firm highlighted that the DXY index, which measures the US dollar’s strength against a basket of currencies, has declined by 1.5% from its peak in late April due to disappointing US economic data.

Despite the Federal Reserve’s hawkish stance, with officials hinting that it would take several months of moderating data before considering rate cuts, the US dollar is experiencing conflicting pressures.

On one side, the Fed maintains a tough stance on monetary policy, while on the other, economic indicators in the US are showing signs of deterioration.

UBS emphasized a cautious approach, advising to be selective in making directional trades with the dollar. This strategy aligns with the current economic climate where mixed signals are emanating from policy makers and economic data.

In addition to advising a short position on USD/CHF, UBS also reported closing their long position on , albeit with a marginal gain. This move reflects their response to the evolving market conditions and their ongoing assessment of currency valuations.

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

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Forex

Analysts sees upside for EUR/GBP amid weak UK retail sales

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Analysts at ING stated that the currency pair seems undervalued, following the United Kingdom’s retail sales data which came in below expectations.

The report released today showed a 2.7% year-over-year decline in headline retail sales for April, with the core figure, excluding auto fuel, dropping by 2.0%. Moreover, the March sales data was revised downwards.

This follows a subdued UK Purchasing Managers’ Index (PMI) report from Sunday, which indicated a slight uptick in manufacturing but was overshadowed by a decline in the services sector, dragging the composite index down to 52.8.

The financial institution pointed out that the British pound currently appears overpriced compared to the euro. This assessment comes in the wake of a significant hawkish adjustment in the Sonia curve, which ING deems excessive, especially since the unexpectedly high services Consumer Price Index (CPI) for May can be partly ascribed to one-off elements.

Moreover, there are indications of a more dovish stance emerging within the Bank of England’s Monetary Policy Committee (MPC). Market projections are leaning towards a mere 33 basis points of easing by the end of the year and less than 10 basis points for the upcoming meeting in August.

Despite this, ING still anticipates a rate cut in August, dismissing the idea that the UK vote might delay monetary easing. ING highlighted the potential for the short-term swap rate gap between EUR and GBP to shift in favor of the euro, especially with the European Central Bank (ECB) possibly taking a hawkish stance and the Bank of England expected to implement a rate cut in August.

Additionally, the upcoming July vote in the UK could lead to a minor political risk premium being factored into the pound. Given these considerations, ING maintains its outlook that the EUR/GBP pair is likely to rise over the longer term.

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

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