Forex
Dollar gains on safe haven bid; sterling helped by CPI data
Investing.com – The U.S. dollar rose Wednesday, boosted by its safe haven after the US closed its embassy in Kyiv, while sterling outperformed after UK inflation rose more than expected in October.
At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher at 106.490, bouncing after falling to a one-week low earlier in the session.
The index climbed to its highest level in a year last week in the wake of Donald Trump’s victory in the presidential election, buoyed by expectations for big fiscal spending, higher tariffs and tighter immigration, measures that could foster inflation and potentially slow Federal Reserve easing.
Geopolitics help dollar
The dollar received a boost Wednesday after the United States shut its embassy in Kyiv due to “specific information of a potential significant air attack.”
This warning came a day after Ukraine used US missiles to strike Russian territory, and Russian President Vladimir Putin changed the threshold for the use of his country’s nuclear arsenal.
The developments threaten to drag the West even further into the conflict between Russia and Ukraine, resulting in demand for the dollar.
“So far, this has translated to some noise in the FX market, but no big moves,” said analysts at ING, in a note.
“We suspect the dynamics in dollar crosses were partly still affected by the dollar’s overbought positioning status, which may have contributed to curbing geopolitics-related gains.”
With little on the economic data slate Wednesday, investors will focus on commentary from Federal Reserve Governors and , as well as Boston Fed President for clues of future Fed monetary policy decisions.
Traders continue to pare back expectations for an interest-rate cut at the Fed’s next meeting in December. Odds now stand at 58.9%%, down from 82.5% a week ago, according to CME’s .
UK inflation surprises to upside
In Europe, fell 0.1% to 1.2671, trading marginally lower due to the strength of the US dollar even as UK CPI data was stronger than expected in October, casting doubt about a rate cut by the Bank of England in December.
Consumer prices rose by an 2.3% last month, above the 2.2% rise expected, and by 0.6% on a basis in October, the biggest month-to-month rise in the annual CPI rate since October 2022.
This rise comes before the impact of the first budget of Britain’s new government, which included higher taxes on companies, is felt.
The Bank of England said the budget was likely to add to inflation next year, and Governor Andrew Bailey on Tuesday stressed the central bank’s message that borrowing costs are likely to come down only gradually.
“Even if there is another inflation print before the next BoE meeting, we would probably need a sharp slowdown in services inflation to put a cut back on the table,” ING added.
traded 0.3% lower to 1.0560, with the expected to continue cutting interest rates given the lack of serious growth in the region while inflation has fallen back to target.
ECB policymaker Fabio Panetta said on Tuesday the central bank should cut interest rates so they no longer curb economic growth, or so they even stimulate it, and give more guidance now that post-pandemic shocks are abating and inflation is normalising.
“With inflation close to target and domestic demand stagnant, restrictive monetary conditions are no longer necessary,” he said.
PBoC keeps rates unchanged
rose 0.7% to 155.80, with the Japanese yen remaining fragile after Japan reported a bigger-than-expected in October.
The focus is now turning to upcoming data from the country on Friday.
climbed 0.1% to 7.2462, hovering around three-month highs.
The People’s Bank of China left its benchmark unchanged as widely expected, after trimming the rate last month.
Wednesday’s hold came on the heels of several more stimulus measures from China since late-September, although Beijing is yet to unlock more targeted fiscal measures.
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.
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.
Investing.com — The dollar has surged past its post-2022 range, buoyed by U.S. economic exceptionalism, a widening interest rate gap, and elevated tariffs, setting the stage for further gains next year.
“Our base case is that the dollar will make some further headway next year as the US continues to outperform, the interest rate gap between the US and other G10 economies widens a little further, and the Trump administration brings in higher US tariffs,” Capital Economics said in a recent note.
The bullish outlook on the greenback comes in the wake of the dollar breaking above its post-2022 trading range, reflecting renewed confidence among investors driven by robust U.S. economic data and policy expectations.
A key risk to the upside call on the dollar is a potential economic rebound in the rest of the world, similar to what occurred in 2016, Capital Economics noted.
Following the 2016 U.S. election, economic activity in the rest of the world rebounded, while Trump’s tax cuts didn’t materialize until the end of 2017, and the Fed took a more dovish path than discounted, resulting in a 10% drop in the DXY on the year, which was its “worst calendar year performance in the past two decades,” it added.
While expectations for a recovery in Europe and Asia seem far off, a positive surprise for global growth “should be ruled out”, Capital Economics said.
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