Forex
Dollar firm ahead of global inflation data
By Tom Westbrook and Amanda Cooper
SINGAPORE/LONDON (Reuters) -The dollar held steady on Monday, but was set for its first monthly loss this year, as investors were focused on U.S., European and Japanese inflation data to guide the global interest rate outlook.
Foreign exchange trade has been dominated by the hunt for “carry” in recent months, punishing low-yield currencies and supporting the dollar, while U.S. data has blown hot and cold and dented policymakers’ confidence on the rates outlook.
Several major pairs have hugged tight ranges. The euro, which gained 0.9% on the dollar last week, was in the middle of a range it has held for more than a year at $1.0845.
The euro offered little reaction to a survey on Monday that showed German business confidence worsened in May, against forecasts for an improvement.
Trading on Monday was thinned out by holidays in Britain and the United States.
German inflation data on Wednesday and euro zone readings on Friday will be watched for confirmation of a European rate cut that traders have pencilled in for next week.
ECB chief economist Philip Lane said on Monday the pace at which the central bank cuts rates will depend on the strength of underlying inflation.
Sterling was testing the top side of a range it has held this year at $1.2745.
Friday’s reading for the U.S. core personal consumption expenditures price index, the Federal Reserve’s preferred inflation measure, is expected to be steady month-on-month.
The dollar had fallen back after data showed a slowdown in consumer price rises in April and confirming the trend could pull it lower still – but the big picture is that inflation and inflation indicators remain above the Fed’s 2% target.
The , which measures the performance of the U.S. currency against six others, was last down modestly at 104.72. It is on track for a drop of 1.5% in May, the most in one month since December.
“A 25-bp (basis point U.S. interest rate) cut in September is priced at a 50/50 proposition, with a total of 57 bps of cuts priced by December – so we’d need a big surprise to change that pricing,” Pepperstone strategist Christ Weston said.
“U.S. core PCE above 3% could do the trick, and that would get the dollar humming along, while a print below 2.7% could see relief resonate through markets,” he said.
CARRY ON
While the rates uncertainty persists, investors have been chasing income and selling low yield currencies such as the yen, yuan and Swiss franc against the euro and the dollar.
The yen may seal its first monthly gain of the year this month thanks to suspected intervention from Japanese authorities towards the end of April and at the start of May, but it has been slipping back since then.
It was steady at 156.86 to the dollar on Monday but has won little support from rising Japanese government bond yields – at the 10-year tenor, for example, they remain nearly 350 basis points below U.S. yields.
Tokyo CPI data, due on Friday, is a reliable guide to the national trend and will be closely watched. Finance ministry data on Friday will also reveal the size of Japan’s intervention.
The U.S. move to shorten equity-market settlement from two days to one is another factor to watch in currency trade this week as dealers expect it may drive trade into the quiet early mornings in Asia.
“Asia-based investors will only have a few hours to aggregate funding requirements, process trade-related FX instructions and manage the execution,” said Lloyd Rees, global custody product lead for Asia and the Middle East at BNY Mellon (NYSE:).
In cryptocurrency markets, ether closed out its largest weekly rise in nearly three years after a surprise approval for some U.S. exchange-traded fund (ETF) applications.
Further approvals remain necessary before launch, but the price of the second-biggest cryptocurrency by market value rose 25% against the dollar last week and another 5% to $3,938 in Asia trade on Monday.
Forex
PBoC adjusts policy amid rising USD demand
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
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
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.
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