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Forex

Dollar extends drop, still vulnerable after Fed

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Dollar extends drop, still vulnerable after Fed
© Reuters. FILE PHOTO: Woman holds U.S. dollar banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Samuel Indyk

LONDON (Reuters) -The U.S. dollar extended its decline on Monday, having fallen last week by the most since July after the Federal Reserve dialled down its hawkish rhetoric and U.S. data showed signs of moderation.

The was hovering around a 6-1/2 week low of 104.84, after falling around 1.4% last week.

The euro gained 0.2% to a 7-1/2 week high of $1.0756.

World stocks too had their strongest week in a year last week as expectations the Fed was done raising rates gathered steam.

Other indicators such as weakness in U.S. jobs data, softer manufacturing numbers and a decline in longer dated Treasury yields also hurt the dollar, while stoking rallies in sterling and the dollar, and causing the yen to bounce from the weaker side of 150 per dollar.

“We always say bad news (weak economic data) is good news,” said Tina Teng, a market analyst at CMC Markets (LON:) in Auckland. “So it’s good then there is expectation for the Fed and other central banks to end the rate hike cycle sooner.”

She expected the dollar to remain on a weaker trend through November.

Dane Cekov, senior FX strategist at Nordea, called last week’s moves an “over-reaction”, saying the jobs data was a “mixed bag”.

“You could still see a somewhat weaker dollar in the short-term, but if the (euro-dollar) rally continues it needs to get some fuel from somewhere.”

JPMorgan analysts say a sustained dollar sell-off would need signs of improvement in the euro zone, China and other regions, which it says are “still tenuous”.

The latest growth and inflation data from the euro zone and manufacturing surveys from China bear that out.

Euro zone recession fears hardened on Monday after a survey showed a downturn in business activity accelerated last month as demand in the services sector weakened further.

“Final PMIs released today … are consistent with our forecast that euro-zone GDP will contract again in Q4,” said Capital Economics Europe economist Adrian Prettejohn.”

“They also suggest that price pressures are continuing to ease.”

Futures markets imply around an 80% probability the European Central Bank will be cutting rates by April and around a 90% chance the Fed has done hiking, with an 86% chance the Fed’s first policy easing would come as soon as June.

Fed Chair Jerome Powell speaking of balanced economic risks sent Treasury yields lower last week, with further declines after the softer U.S. data.

The U.S. government also cut its refinancing estimate for this quarter, and announced lower increases in long-dated debt auctions than expected.

Yields on 2-year notes have dropped 25 basis points in roughly two weeks, while 10-year yields languished near a five-week low and last stood at 4.593%. The front end of the curve remains deeply inverted.

The Japanese yen slipped 0.2% to 149.62.5 per dollar. Nordea’s Cekov said the yen likely needs to be around the 155 per dollar area for Japanese authorities to consider intervention or to talk the currency up.

The yen hit 151.74 per dollar last week, edging close to October 2022 lows that spurred several rounds of dollar-selling intervention by the Bank of Japan.

Sterling was up 0.4% at $1.2425. Britain’s GDP data for the third quarter is due this week and, while the pound rallied strongly last week in a market that is heavily short the currency, it is still down about 5.5% since a July peak.

In cryptocurrencies, bitcoin was inching higher at $35,179. The risky asset has been recently buoyed by the expected end of central bank policy tightening cycles and the prospect of the approval of new spot bitcoin exchange-traded funds.

Forex

Dollar retains strength; euro near two-year low

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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. 

 

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Forex

Asia FX muted, dollar recovers as markets look to slower rate cuts

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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.

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Forex

Asia FX edges lower as dollar remains near 2-yr high, Indian rupee hits record low

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Investing.com– Most Asian currencies were lower on Thursday as the dollar remained steady near a two-year high, while the Indian rupee fell to an all-time low.

Most markets in the region were closed on Wednesday for Christmas.

The was largely steady, while the ticked lower in Asian trade on Thursday.

Asian currencies weakened sharply last week after the Federal Reserve projected fewer rate cuts in 2025, citing concerns over sticky U.S. inflation. 

Indian rupee hits record low, dollar remains near 2-yr high

The Indian rupee fell to an all-time low against the U.S. dollar, with the  pair hitting a record peak of 85.497 rupees with a 0.2% fall on Thursday. The pair had breached the 85 rupee mark last week.

The Chinese yuan’s onshore pair edged higher on Thursday. Chinese authorities have decided to issue a record-breaking 3 trillion yuan ($411 billion) in special treasury bonds next year, in an intensified fiscal effort to stimulate a struggling economy, Reuters reported on Tuesday.

The Singapore dollar’s  pair rose 0.1%, while the Australian dollar’s pair fell 0.2%.

The South Korean won’s pair rose 0.4%, while the Philippine peso’s pair fell more than 1%, bucking the regional trend.

The U.S. dollar has shown notable strength in recent months, supported by a combination of domestic and global factors. 

One key driver has been the Federal Reserve’s monetary policy stance, which, despite earlier rate cuts, has shifted to maintaining higher interest rates for 2025 with projections of only two cuts.

Additionally, expectations of potential tariffs under the incoming Donald Trump administration have led to projections of higher inflation and robust economic performance, further boosting the dollar’s appeal.

With expectations of the dollar remaining strong, the outlook for Asian currencies has become more clouded amid global uncertainties.

Japanese yen muted amid rate hike bets

The Japanese yen’s pair was largely unchanged on Thursday.

Japan’s government is preparing a record $735 billion budget for the fiscal year starting in April, driven by rising social security and debt-servicing expenses, according to a draft obtained by Reuters.

BOJ Governor Kazuo Ueda said on Wednesday that the economy is expected to make progress toward sustainably reaching the central bank’s 2% inflation target next year, hinting that an interest rate hike could be approaching.

The Bank of Japan ended negative interest rates in March and increased its short-term policy rate to 0.25% in July. It has indicated a willingness to raise rates further if wage and price trends align with its forecasts.

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