Forex
Dollar gains vs most currencies as US nonfarm payrolls loom
© Reuters. FILE PHOTO: Woman holds U.S. dollar banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The dollar rose against most currencies on Thursday in choppy trading, bolstered by better-than-expected U.S. labor market data that dampened expectations of multiple interest rate cuts by the Federal Reserve this year.
A crucial nonfarm payrolls report due on Friday could guide the outlook on Fed policy easing. Economists polled by Reuters forecast that 170,000 jobs were created in December, fewer than the 199,000 the month before.
The U.S. currency gained on news that U.S. private employers hired more workers than expected in December. Private payrolls increased by 164,000 jobs last month, the ADP National Employment Report showed, the largest monthly increase since August. Economists polled by Reuters had forecast private payrolls rising by 115,000.
Initial claims for state unemployment benefits dropped by 18,000 to a seasonally adjusted 202,000 for the week ended Dec. 30, also bolstering the dollar. Economists polled by Reuters had forecast 216,000 claims for the latest week.
The data “showed that the U.S. economy is in a healthy position,” said Amo Sahota, director at FX consulting firm Klarity FX in San Francisco. “That’s where everything leads down this road of resetting market expectations early this year on what the Fed’s action is going to be.”
Following Thursday’s economic reports, U.S. interest rate futures reduced expectations on the number of rate cuts for 2024 to four decreases of 25 basis points each, from about six late on Wednesday, according to LSEG’s interest rate probability app.
Wednesday’s release of the minutes of the Federal Reserve’s Dec. 12-13 policy meeting was viewed as modestly hawkish by market participants. Fed officials “stressed … that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the (Federal Open Market) Committee’s objective.”
“If there was going to be a hard landing in the economy, then sure, let’s ramp up expectations for a quick interest rate cut early this year,” Sahota said. “But that is not what the Fed is thinking and (based on the data), we’re not headed for a hard landing and the economy looks pretty good.”
In cryptocurrencies, bitcoin gained 3%, at $44,157. Investors are anticipating U.S. Securities and Exchange Commission approval of the first spot bitcoin exchange traded fund over the next week or so.
In afternoon trading, the rose slightly to 102.44, after hitting two-week peaks on Wednesday.
Against the yen, the greenback rose to two-week peaks, climbing for three straight days. The dollar was last up 0.9% at 144.52 yen.
That said, Thierry Albert Wizman, global FX and rates strategist at Macquarie in New York, does not believe dollar gains since the beginning of the year could be sustained despite a pushback in rate cut expectations.
“I do think the U.S. economy will slow, and it’s going to be a consumer-led slowdown and we’re going to see convergence between growth rates in the U.S. and the rest of the world this year,” Wizman said.
“Over the course of the first six months of the year, we can see some dollar weakness relative to the euro, sterling, and the yen.”
Among other currencies, the euro rose 0.2% against the dollar to $1.0948, on data showing higher inflation in Europe.
French consumer prices rose in December, in line with expectations, preliminary data from the national statistics body showed on Thursday, as energy and services prices rose over the year. In Germany, CPI inflation rose to 3.7% in December, as expected, from 3.2% a month earlier.
Sterling also climbed against the dollar following data showing British borrowers increased demand for loans and business service were more resilient than feared in Britain. UK net borrowing in November was the highest in nearly seven years.
A separate business survey, the UK Services Purchasing Managers’ Index (PM), showed Britain’s services firms grew more strongly in December than initially thought and optimism hit a seven-month high.
Sterling was last up 0.2% at $1.2680. It rose as much as 0.5% to $1.2728 after the data release.
Bank of America reported that investors had broadly sold off the US dollar last week, influenced by slightly positive economic indicators from the United States. The movement came in response to somewhat encouraging US inflation data and softer-than-expected retail sales figures.
According to the Bank of America, the sell-off of the US dollar was widespread, with real money investors now holding a slightly short position on the currency. Despite this trend, hedge funds’ long positions on the US dollar are still near the highest levels seen in the past five years.
In the foreign exchange markets, the Australian dollar (AUD) saw increased interest, with investors continuing to build their long positions. Conversely, short positions in the Swedish krona (SEK) and the New Zealand dollar (NZD) experienced a slight reduction.
Emerging market currencies also attracted attention, with buying activity focused particularly on regions such as Europe, the Middle East, and Africa (EMEA), as well as Asia. The Turkish lira (TRY) was highlighted as a currency where both hedge funds and emerging market investors increased their buying across the board.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
By Stefano Rebaudo
(Reuters) -The dollar struggled for direction on Tuesday as investors stuck to their views for the expected timing of Federal Reserve monetary easing this year.
Ether was set for its largest two-day gain in nearly two years and bitcoin approached a record high on speculation about the outcome of applications for U.S. spot exchange-traded funds that would track the world’s second-biggest cryptocurrency.
The euro rose 0.12% to $1.0869.
Investors are awaiting Thursday’s data from the European Central Bank (ECB) negotiated wage tracker and the euro zone Purchasing Managers’ Index (PMI) which could provide further clues about the monetary cycle in the euro area.
Meanwhile, with little on the U.S. economic data calendar this week to guide the direction of the dollar, investors’ focus is turning to a slew of Federal Reserve speakers.
Several officials on Monday called for continued policy caution, even after data last week showed an easing in consumer price pressures in April.
Money markets are now pricing in 42 basis points (bps) of Fed rate cuts in 2024 — implying one 25 bps reduction and a 68% chance of a second move by December — from fully pricing in two cuts before recent hawkish comments from central bank officials.
They are betting on 63 bps of ECB rate cuts in 2024 from around 73 bps in mid-May.
Some analysts highlighted that Atlanta Fed President Raphael Bostic made dollar-positive remarks when he cautioned that the Fed’s benchmark rate would likely end up at a higher steady rate than in the past decade.
“We expect the dollar to weaken after the first rate cut (by the Fed), which markets now price in September, but we also see the risk of a delay in the monetary easing with the Fed making the first move in December,” said Athanasios Vamvakidis, global head of forex strategy at BofA.
Against a basket of currencies, the dollar dropped 0.08% at 104.52.
“We see risks towards far greater divergence favouring the Fed,” argued George Saravelos, global head of forex research at Deutsche Bank, after noting remarkable symmetry in monetary policy that is still priced in by markets.
“Combined with the status of high-yielding currency, this provides a powerful underpinning to USD strength,” he added.
On the data front, the focus will now be on the Personal Consumption Expenditures (PCE) price index report – the Fed’s preferred gauge of inflation – due on May 31.
In the cryptoverse, ether jumped 6.2% to $3.715.60 after hitting $3,730.70, its highest level since March 16. It surged nearly 14% in the previous session – its largest daily percentage gain since November 2022.
broke above the $70,000 level and was last trading 2% higher at $71,128. It hit its all-time high at $73,803.25 in March.
The jump in cryptocurrencies also has “to do with that core (U.S.) inflation data last week that’s boosted risk sentiment and obviously brought rate cuts back into play,” said Tony Sycamore, a market analyst at IG.
Against the yen, the dollar dropped 0.06% to 156.20, not far from its lowest in over 30 years at around 160.
Fears of intervention from Japanese authorities deterred traders from pushing the yen to new lows. However, the still-stark interest rate differentials between the U.S. and Japan maintained the appeal of the yen as a funding currency.
“Forex interventions can buy some time and temporarily avoid an excessive depreciation of the yen, but if the Fed starts cutting later than the markets currently expect, it can become challenging for Japanese authorities to keep the yen below certain levels,” BofA’s Vamvakidis argued.
The Canadian dollar was flat at $1.3627 ahead of inflation data later in the session.
“We have called for a Bank of Canada (BoC) rate cut in June for the past couple of months, and are expecting that to make the increasingly less attractive compared to other commodity currencies,” said Francesco Pesole strategist at ING.
The BoC would be willing to cut interest rates three times ahead of the Fed first move, according to a Reuters poll.
The New Zealand dollar fell 0.03% to $0.6103, before the Reserve Bank of New Zealand policy meeting which is expected to hold its key interest rate at 5.50% on Wednesday.
Bank of America (BofA) analysts provided insights into currency market trends, noting a significant rally in the pair last week. The surge was attributed to a subdued US Consumer Price Index (CPI) report. BofA’s signals indicate that the upward trend for the euro against the US dollar is likely to continue.
The bank’s analysis pointed to option flows that show a sustained demand for USD puts, suggesting that investors are betting on a weaker dollar. Additionally, BofA’s technical matrix revealed signals of a continuing downtrend for the USD when compared to major currencies such as the euro (EUR), the British pound (GBP), and the New Zealand dollar (NZD).
Despite the positive trend for the EURUSD, BofA cautioned that the momentum seen in the risk rally might not be as strong moving forward. The analysts observed that the (DXY), which measures the dollar’s strength against a basket of currencies, managed to close above its 200-day Simple Moving Average (SMA), an indication of a potential slowing in the dollar’s decline.
Furthermore, BofA’s economists have noted an absence of significant market-moving events from US economic data expected this week. Without new bearish catalysts for the USD, the currency’s downtrend might not maintain the same pace as observed last week.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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