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Dollar finds foothold ahead of jobs opening, services PMI data

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Dollar finds foothold ahead of jobs opening, services PMI data
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Investing.com – The U.S. dollar stabilized in early European trade Tuesday, near a one-week high, as traders scaled back dovish Federal Reserve bets ahead of key economic data releases.

At 04:30 ET (09:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely unchanged at 103.559, after recording its weakest monthly performance in a year in November.

Greenback finds support ahead of key data

The dollar was on the backfoot for most of November as traders began pricing in bigger rate cuts by the Fed next year than by any other major central bank.

However, the greenback has found some support with traders scaling back those bets ahead of the release of a series of important data releases this week, starting later in the session with U.S. and , before the widely watched on Friday.

“We suspect markets may be positioning ahead of next week’s Fed meeting, when Chair Jerome Powell may insist on his pushback against rate cut bets,” said analysts at ING, in a note.

“Today, however, market moves will be heavily impacted by two important data releases: JOLTS job openings and the ISM services. The first probably holds the keys to a bigger market reaction, given the proximity to U.S. payrolls data and the fact that markets are anxiously waiting for signs of a decisive turn lower in the jobs market to jump on bearish dollar positions.”

Eurozone heading for recession

In Europe, edged lower to 1.0835, close to Monday’s three-week low, after the eurozone’s rose to 47.6, its best reading since July, from October’s near three-year low of 46.5, and above a 47.1 preliminary estimate.

While the downturn in the region’s business activity eased last month, it still suggested the bloc’s economy will contract again this quarter, pointing to a regional recession. Last quarter the contracted 0.1%, according to official data.

tumbled to 2.4% last month from above 10% a year earlier, putting it close to the ECB’s 2% inflation target. 

The European Central Bank can take further interest rate hikes off the table given a “remarkable” fall in inflation and policymakers should not guide for rates to remain steady through mid-2024, ECB board member Isabel Schnabel, a known hawk, said Tuesday.

fell 0.1% to 1.2624, retreating further from its recent three-month top of 1.2733.

Aussie dollar slumps after RBA meeting

In Asia, fell 0.6% to 0.6581 after the held its benchmark interest rate steady at 4.35%, after hiking by 25 basis points in October.

Governor Michele Bullock said that the bank needed more economic cues before considering any more changes to monetary policy, but warned that inflation risks still persisted.

traded 0.1% lower to 147.07, some distance away from the three-decade low of 151.92 it touched in the middle of November, even as growth in the country’s services sector missed expectations in November.

traded largely unchanged at 7.1418, even as a showed the country’s services sector grew more than expected in November. But the yuan was presented with new downside risks from growing fears of another epidemic in the country, as local media reports showed a spike in respiratory illnesses across major Chinese cities.

 

Forex

Dollar firms, euro slips ahead of key inflation data

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Dollar firms, euro slips ahead of key inflation data
© Reuters

Investing.com – The U.S. dollar firmed in early European trade Wednesday, shrugging off signs of U.S. economic weakness ahead of the release of this week’s key inflation data as traders look for clues as to when the Federal Reserve will start cutting interest rates.

At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher at 104.080. 

U.S. inflation to prove sticky?

Data released on Tuesday showed that orders for U.S. fell a hefty 6.1% last month, while the Conference Board’s was revised lower for January and declined further in February. 

However, these signs of economic weakness have had little impact on the U.S. currency with all eyes on the , the Fed’s favorite inflation gauge, due on Thursday. 

Economists are expecting a 0.4% increase for January after 0.2% in the previous month. A stickier-than-expected reading could prompt the Fed to delay rate cuts further.

“We remain of the view that evidence of resilient inflation in the Fed’s preferred measure of inflation will offer more support to the dollar into the end of the week,” said analysts at ING, in a note.

Markets have largely priced out a rate cut at both the Fed’s March and May meeting, and the chance of a cut in June is seen as largely 50:50.

Before the PCE data, a second reading on fourth-quarter is due later on Wednesday, while there are more Fed officials due to speak, including , and .

Euro edges lower ahead of eurozone CPI

In Europe, traded 0.2% lower at 1.0818, with Europe also looking forward to its own slew of inflation reports, with Germany, France and Spain scheduled to release price data on Thursday ahead of the on Friday.

Economists are expecting an annual reading of 2.5% for February, dropping from 2.8% in January.

Still, the dollar trade continues to dominate, and this inflation release will have to provide a major surprise to influence the pair substantially.

“EUR/USD continues to follow the dollar dynamics without showing any material impact from eurozone-specific drivers. The pair looks likely to test 1.0800 in the coming days, in our view,” ING added. 

traded 0.4% lower at 1.2635, with sterling hit by a stronger dollar and after recent data showed U.K. grocery prices rising at their lowest rate since March 2022.

Kiwi dollar slumps after RBNZ meeting

In Asia, fell 1.1% to 0.6103, near a two-week low, after the held interest rates steady at 5.5%, but flagged more progress in inflation moving towards its 1% to 3% annual target. 

While the bank still signaled that it will keep interest rates higher for longer in the near-term, its comments saw traders largely price out expectations of any more rate hikes.

traded 0.2% higher to 150.80, with the yen weakening further beyond the 150 level, although steeper losses were limited by the prospect of early interest rate hikes and government intervention.

traded largely unchanged at 7.1993, as traders awaited the release of key for February, due this Friday. 

 

 

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Forex

Dollar slips vs yen after Japan inflation data, US durable goods

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Dollar slips vs yen after Japan inflation data, US durable goods
© Reuters. FILE PHOTO: U.S. Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Caroline Valetkevitch

NEW YORK (Reuters) -The dollar eased against the Japanese yen on Tuesday after data showed Japan’s core consumer inflation exceeded forecasts while U.S. durable goods orders fell more than expected in January.

Overnight data out of Japan kept alive some expectations that the Bank of Japan might end negative interest rates by April.

In the U.S., the Commerce Department’s Census Bureau said orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, tumbled 6.1% last month, exceeding the 4.5% decline forecast by economists polled by Reuters.

Markets have recently pulled back expectations on the timing and size of Federal Reserve rate cuts this year as the U.S. economy remains strong and inflation pressures stubborn.

Against the yen, the dollar dipped 0.1% to 150.56, while the , which measures the currency against a basket of peers, was last up 0.08% at 103.86.

“Inflation numbers have been drifting a bit lower in Japan over the past few months, but today’s numbers did suggest inflation is sticky even in Japan,” said Shaun Osborne, chief currency strategist at Scotiabank in Toronto.

“It probably does mean we’ll get a mild series of rate increases in Japan in the next few months.”

hit a two-year high on signs large players were buying the cryptocurrency.

Bitcoin was last up 5.22% at $57,513, while ether rose 2.26% at $3,258.

In other U.S. economic news, the consumer confidence index slipped to 106.7 this month – short of forecasts – from a downwardly revised 110.9 in January.

The U.S. core personal consumption expenditures (PCE) price index, due on Thursday, is expected to be one of the more important reports of the week for the market. Forecasts are for a rise of 0.4%.

“We’re waiting for the PCE data to give us a stronger sense of direction perhaps,” Osborne said. “I think we’re prepped for slightly stronger numbers; it probably at this point would have to be a big upside surprise to really get the dollar strengthening.”

The euro was last down 0.1% versus the greenback. It has been rising since mid-February, when it hit its lowest since Nov. 14.

Analysts said the single currency strengthened as markets scaled back bets on future European Central Bank rate cuts to 90 bps by year-end, amid encouraging signals from the economy, which supports expectations for a pick-up in growth in the second half of 2024.

German states, France and Spain will release inflation data on Thursday ahead of the euro area’s figures due on Friday.

ECB officials have sounded more cautious about a quick easing of monetary policy, with President Christine Lagarde saying wage growth remains robust, while ECB dove Yannis Stournaras ruled out a rate cut before June.

The dollar strengthened 0.06% at 7.214 versus the offshore . The People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1057 per dollar.

The weakened 0.06% versus the greenback at $0.617, with traders gearing up for what could turn out to be a significant policy meeting by the Reserve Bank of New Zealand (RBNZ) on Wednesday.

Markets are pricing in a one-in-three chance the RBNZ will raise its 5.5% official cash rate to combat stubborn inflation.

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Dollar firmer before key inflation data, kiwi sinks as RBNZ holds rates

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Dollar firmer before key inflation data, kiwi sinks as RBNZ holds rates
© Reuters. FILE PHOTO: U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

By Samuel Indyk and Brigid Riley

LONDON (Reuters) -The dollar firmed up on Wednesday as markets awaited a raft of global inflation data for clues on when central banks may start easing policy, while the New Zealand dollar tumbled after its central bank trimmed its forecast for a peak in rates.

The was also hanging at its lowest in over a week after inflation data came in softer than expected, reinforcing expectations that domestic interest rates are unlikely to increase further.

The data calendar looks light on Wednesday so analysts said markets were likely to focus on consumer inflation data from the U.S., Germany, France and Spain on Thursday ahead of euro area figures due on Friday.

“There’s more chance of disinflation ongoing in the euro area, which perhaps could open the door for an earlier cut from the European Central Bank,” said Danske Bank FX and rates strategist Mohamad Al-Saraf.

“We think if inflation is stickier in the U.S. than it is in the euro area then the dollar has to be strong.”

Higher-than-forecast inflation in the U.S. has prompted markets to trim bets on the number of rate cuts expected from the Federal Reserve this year, while the chance of a cut in June now stands at around 60%. At the start of the year, markets were almost fully pricing a rate cut in March.

That repricing has pushed the U.S. currency higher in 2024, including against the euro. The single currency was last down 0.3% against the dollar at $1.0815.

The , which measures the currency against six others including the euro, was last up 0.2% at 104.07, having risen 2.7% year-to-date.

With market expectations more closely aligned with the Fed’s latest projections and comments, traders would only respond if they see a trend break in tier one data, especially anything “hinting at growth weakness,” said Charu Chanana, head of currency strategy at Saxo.

New Zealand’s central bank held the cash rate steady at 5.5%, catching markets by surprise as policymakers said the risks to the inflation outlook have become more balanced.

The RBNZ also trimmed its forecast cash rate peak to 5.6% from a previous projection of 5.7%.

“With a cash rate at 5.5%, the 10 basis points of wriggle room is simply there to remind us that they’ll hike if they need to but the bias is that they probably won’t,” said Matt Simpson, senior market analyst at City Index.

The slid over 1% to its lowest since Feb. 16 at $0.6093 in response.

The Australian dollar also fell after data showed inflation at an annual pace of 3.4% in January, unchanged from December and under market forecasts of 3.6%.

Although inflation remains above the Reserve Bank of Australia’s (RBA) 2-3% target, “it is close enough to expect the RBA to hold rates steady,” said Simpson.

The Aussie was last down 0.6% at $0.6502.

Elsewhere, sterling weakened to $1.2657, down 0.2%, while the yen slipped 0.1% versus the greenback to 150.595.

“We’ve seen in the past when dollar-yen trades above 150 that authorities start to give increased attention to the currency,” Danske Bank’s Al-Saraf said.

“But I would say right now there’s probably not intervention risk unless we see a sharp move in the yen again.”

In cryptocurrencies, bitcoin was last up over 4% at $59,200, extending to its highest level since November 2021.

Ether rose 2% to $3,320.

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