Forex
Dollar edges lower, handing back recent gains ahead of jobless data
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Investing.com – The U.S. dollar retreated from the previous session’s three-week peak in early European trade Thursday as traders digested the minutes of the Federal Reserve’s December meeting ahead of weekly jobless data.
At 04:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 102.017, having hit a three-week peak of 102.73 in the previous session.
Dollar slips from recent highs
The of the Fed’s December policy meeting, released late on Wednesday, showed officials were convinced inflation was coming under control and were concerned about the risks of the central bank’s “overly restrictive” monetary policy on the economy.
However, they provided little clarity on the timetable for rate cuts this year.
“The conditionality attached to cutting rates is hawkish in the sense that it puts pressure on markets to unwind the March easing bets, but the risks flagged to the economic outlook and discussion about exiting quantitative tightening are unequivocally dovish,” said analysts at ING, in a note.
Attention will now turn to the weekly data later Thursday, ahead of Friday’s closely watched U.S. report, which will likely give further clarity on how much room the Fed has to lower rates.
Euro edges higher after French CPI
In Europe, traded 0.2% higher at 1.0947, after the latest figures came in slightly weaker than expected – rising 0.1% on the month in December, an annual rise of 3.7%.
German regional inflation figures have also started emerging Thursday, with the eurozone-wide CPI release due on Friday.
“The ability of the euro to benefit from some unwinding of rate cut bets must be weighed against evidence that the EUR/USD is primarily driven by equity/risk sentiment factors at the moment, and the short-term rate differentials remain heavily unfavourable for the euro,” ING added.
rose 0.2% to 1.2692, with sterling not far above its recent three-week low at 1.2667.
Yen retreats after weak PMI data
Elsewhere, traded 0.3% higher to 143.74, with the yen weakening after purchasing managers index data showed that Japanese economic activity remained fragile, as the remained in contraction in December.
edged higher to 7.1517, with sentiment towards China dealt a fresh blow by Fitch downgrading the ratings of four major state-backed asset managers, and placing three of them on watch for more cuts.
On Monday, Bank of America (BofA) provided insights into the potential actions of Commodity Trading Advisors (CTAs) in the coming week.
According to BofA, CTAs might continue to sell the U.S. dollar (USD) against most currencies following a trend that emerged after the Consumer Price Index (CPI) report led to a weakening dollar. The bank’s models indicate that USD long positions have been reduced this week.
The bank’s analysis suggests that in the foreign exchange (FX) market, CTAs are likely to persist with short covering in the euro (EUR), British pound (GBP), and Canadian dollar (CAD).
Additionally, there is an expectation for CTAs to increase their recently established long positions in the Australian dollar (AUD) and potentially initiate a long position in the Mexican peso (MXN), given the positive trend strength for the peso.
In the commodities sector, despite an increase in the price of gold last week, the trend for the precious metal declined, prompting CTAs to sell, albeit at a slower pace. BofA anticipates that this trend of selling gold and oil will continue into the next week.
The analysis also noted that CTAs’ long positions in are nearing extremely high levels, while long positions in aluminium are being unwound. In contrast, soybeans are experiencing short covering.
The bank’s report serves as a gauge of how trend-following traders might adjust their portfolios in response to market movements.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
On Monday, Bank of America (BofA) analysts provided insights into the current state of G10 foreign exchange (FX) markets, noting a general sentiment of disappointment among investors due to the markets’ lack of volatility.
Despite a recent reversal in the U.S. dollar (USD), major currency pairs have not moved significantly, staying within their established ranges. BofA anticipates further depreciation of the USD, yet it emphasizes that the currency’s movements are expected to remain close to year-end consensus forecasts.
The analysis highlighted that while markets have expressed a desire for more excitement in G10 FX trading, they must come to terms with the inherent trade-off between carry trade opportunities and higher volatility. Carry trades, where investors borrow in low-yielding currencies to invest in higher-yielding ones, have been identified as a dominant trend post-global financial crisis.
However, this strategy tends to reduce market volatility, leading to what BofA describes as an “uninspiring” and “stuck in the mud” trading environment.
BofA’s commentary suggests that the pursuit of carry as a passive strategy has been a factor in dampening volatility in the FX markets. The firm underscores that investors should not expect both high carry returns and high volatility, as these market conditions are typically mutually exclusive. The lack of clear fundamental trends in G10 FX has been a source of frustration for markets, but the current trend of carry is clear, even if it leads to lower volatility.
The analysts also touched upon the anticipation around the next batch of U.S. data, which many investors hope might shift the narrative. However, BofA indicates that such expectations may be overly optimistic. The firm’s message to the markets is to adjust expectations and accept the current dynamics, with the USD continuing to play a central role in the G10 FX space.
In summary, BofA’s analysis points to a continuation of the recent patterns in G10 FX markets, with a slight downward trend in the USD value but within the bounds of recent trading ranges.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Investing.com – The U.S. dollar is trading in a calm fashion against the majors of late, and these narrow ranges will likely stay for a while longer, according to Goldman Sachs, with divergence having to wait.
AT 05:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded unchanged at 104.330, steadying after losing around 1% last week in the wake of soft U.S. inflation data.
“We think there is only limited room for the market to press Dollar shorts on the back of the inflation news,” said analysts at Goldman Sachs, in a note dated May 17.
“After all, while the prints were mostly in line with expectations, they were not in line with the target. As a result, the news does not change the policy outlook much beyond reinforcing the recent rhetoric.”
The subsequent market response has been reminiscent of the post-March FOMC FX reaction, when the response to ‘dovish dots’ stalled not because of fresh data, but instead because FX is still a relative game, and the Dollar fundamentals have not shifted much, the investment bank added.
And, this time around, we think the rally in front end rates looks more consistent with cyclical concerns rather than dovish expectations.
“That matters for FX because there is a narrow path for the Dollar to depreciate on a broad basis when growth is softening,” the bank added. “This is especially true in the current environment when faster Fed cuts would likely be met with easier policy abroad as well.”
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