Forex

Dollar edges lower but poised for weekly gain as early rate cut hopes dim

Published

1 year ago

January 21, 2024

Dollar edges lower but poised for weekly gain as early rate cut hopes dim

By Chuck Mikolajczak

NEW YORK (Reuters) -The U.S. dollar edged lower on Friday, pausing after five straight sessions of gains but still poised for a weekly climb, as recent economic data and comments from Federal Reserve officials dampened expectations of rapid cuts in interest rates.

The greenback strengthened early in the session after economic data showed the University of Michigan’s preliminary reading on the overall index of consumer sentiment came in at 78.8 this month, the highest reading since July 2021, compared with 69.7 in December and the 70.0 estimate of economists polled by Reuters.

The data comes on the heels of solid labor market and retail sales data earlier this week indicating the economy remained firm.

Expectations for a cut from the Fed in March of at least 25 basis points (bps) have dipped below 50% according to CME’s FedWatch Tool, with traders now targeting May as the likely month for a rate cut announcement.

“The market is refusing to give up, it is pushing its ideas into the future, but it hasn’t changed its ideas,” said Joseph Trevisani, senior analyst at FXStreet in New York.

“The Fed is going to start lowering rates and the reason they’re going to start lowering rates is the economy is going to get weaker – this has been the mantra ever since the Fed pretty much started raising rates.”

The , which tracks the greenback against a basket of six currencies, was down 0.08% at 103.26, on pace to snap a five-session win streak, but was up 0.8% on the week.

A steady stream of Fed officials, starting with Governor Christopher Waller on Tuesday, have pushed back on market expectations the central bank will embark on a path of fast reductions to interest rates. Waller said the Fed should proceed “methodically and carefully” until it is clear lower inflation will be sustained.

On Friday, Chicago Fed President Austan Goolsbee said weeks more of inflation data need to be in hand before any decision could be made to cut interest rates.

In addition, Federal Reserve Bank of San Francisco President Mary Daly said there is still a lot of work left to do on inflation and it is premature to think rate cuts are around the corner.

The euro was up 0.16% at $1.0891 against the dollar but is down about 0.5% for the week. J.P.Morgan on Friday pulled forward its expectations for the start of interest-rate cuts by the European Central Bank to June from September, but said it remained “cautious” about inflation and wage growth trends.

The yen was flat versus the greenback at 148.15. The Bank of Japan is scheduled to hold a policy meeting next Monday and Tuesday, and is likely to maintain its ultra-loose monetary settings. The dollar is up more than 2% against the Japanese currency this week and on track for its third straight weekly gain.

Earlier data showed Japan’s core inflation rate slowed to 2.3% in the year to December, its lowest annual pace since June 2022, taking the pressure off policymakers to make swift moves.

Sterling was last trading at $1.27, down 0.06% on the day after weakening to $1.2662 following data which showed UK retail sales slumped by the most in three years in December.

In cryptocurrencies, bitcoin gained 2.04% to $41,900.00 but was on track for its second straight week of declines as investors have taken profits following the U.S. approval of spot bitcoin exchange-traded funds.

Forex

PBoC adjusts policy amid rising USD demand

Published

9 hours ago

January 23, 2025

The People’s Bank of China (PBoC) responded to increasing demand for the US dollar by adjusting its cross-border macroprudential parameter.

The central bank’s decision to raise the parameter from 1.50 to 1.75 allows domestic corporations and financial institutions to engage in more cross-border borrowing.

The adjustment came as the foreign exchange settlement balance for banks’ clients showed a deficit of $10.5 billion, marking the first negative reading since July 2024. This deficit contrasts with the previous month’s figures. The rise in demand for the US dollar was particularly noticeable in service trade transactions.

Recent weeks have seen domestic importers actively purchasing US dollars through foreign exchange forwards. This move is a strategy to hedge against potential risks associated with tariffs, which has contributed to an upward push on forward points.

The PBoC’s policy change on January 13 reflects efforts to manage market expectations regarding foreign exchange rates.

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

Forex

Macquarie sees stable USD/CAD trend, eyes 1.35 mid-year target

Published

9 hours ago

January 23, 2025

On Wednesday, Macquarie analysts provided insights into the potential future movements of the Canadian dollar (CAD) against the US dollar (USD).

They indicated that the fears of heavy-handed US import tariffs are unlikely to materialize immediately after the inauguration, suggesting that the USD’s rally against the EUR, CAD, and other currencies might not extend beyond the first quarter of the year.

The analysts highlighted that despite the initial threats of tariffs, Canada is expected to grow even closer to the United States in the coming years. This projection is based on several factors including Canada’s domestic politics, foreign policy, border and immigration policies, as well as trade and capital account flows, all of which demonstrate aligned interests with the US. The anticipated renegotiation of the United States-Mexico-Canada Agreement (USMCA) is expected to cement this relationship further.

According to Macquarie, this closer relationship between Canada and the US will lead to a much more stable exchange rate in the future. They predict that as a result of these developments, the USD/CAD pair will experience a downward drift, potentially reaching a mid-year target of 1.35.

The stability in the USD/CAD exchange rate is seen as a reflection of the ‘merger trend’ context, where the two economies continue to integrate and align, leading to less exchange rate fluctuation. Macquarie’s analysis projects a calmer period ahead for the currency pair, which has historically been influenced by trade policies and geopolitical factors.

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

Forex

Dollar edges higher; Trump’s speech at Davos in spotlight

Published

9 hours ago

January 23, 2025

Investing.com – The US dollar lifted slightly Thursday, but remained in a tight trading range ahead of a speech by President Donald Trump at the World Economic Forum.

At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher to 108.150, after starting the week with a drop of over 1%.

Dollar treads water

The dollar has largely treaded water over the last couple of days as traders await more clarity over President Donald Trump’s plans for tariffs, following the sharp fall on Monday as his first day in office brought a barrage of executive orders, but none on tariffs.

He has subsequently talked about levies of around 25% on Canada and Mexico and 10% on China from Feb. 1, as well as mentioning duties on European imports, but without concrete action.

Trump speaks later in the session at the World Economic Forum in Davos, Switzerland, and traders are eagerly awaiting any comments on this topic as well as for his position on major geopolitical and economic issues such as the Ukraine-Russia war and the economic rivalry with China.

“This week’s dollar correction has not gone too far. Despite the heavy one-way positioning of the dollar, investors lack clarity on the timing of Trump’s tariff threats, preventing them from reducing dollar holdings,” said analysts at ING, in a note.

Also causing traders to pause for breath is the spate of central bank policy decisions due over the next week, including the on Friday, ahead of the and the next week.

Euro lower ahead of ECB meeting

In Europe, slipped 0.1% lower to 1.0404, with the single currency weak ahead of next week’s ECB meeting, with an interest rate cut largely seen as a done deal.

“This week’s EUR/USD bounce has been pretty muted so far,” said ING. “There is no way investors can expect to hear an ‘all-clear’ signal on tariffs. And keeping trading partners off balance/guessing is a tactic that kept the dollar reasonably well bid during Trump’s last tariff regime in 2018-19.”

traded 0.1% lower to 1.2304, while rose 0.2% to 11.3035 ahead of a policy-setting meeting by the later in the session.

“Norges Bank is widely expected to keep rates on hold today,” ING said. “On the whole, the key variables monitored by NB have not clearly argued a rate cut should be pushed beyond March. Also, the risks to global growth related to Trump’s protectionism plans should encourage policymakers to allow some breathing room with a rate cut before the end of the first quarter.”

BOJ meeting to conclude Friday

In Asia, traded largely unchanged at 156.47, ahead of the Bank of Japan’s two-day policy meeting, which concludes on Friday.

The BoJ is widely expected to raise interest rates as recent inflation and wage data have been encouraging, and the central bank is likely to signal further interest rate hikes if the economy maintains its recovery

traded 0.2% higher to 7.2877, with the Chinese currency weaker on fears Trump will confirm US tariffs on Chinese imports, hitting the second largest economy in the world.