Forex
Dollar holds near 5-week peak as Fed rate cut bets tempered
© Reuters. FILE PHOTO: U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
By Samuel Indyk and Kevin Buckland
LONDON (Reuters) -The dollar hovered near a five-week peak against major peers on Thursday after robust U.S. retail sales data added to expectations the Federal Reserve will not rush to lower interest rates.
The , which measures the currency against a basket of six rivals, was steady at 103.34 in Europe, after reaching 103.69 on Wednesday for the first time since Dec. 13.
Traders have trimmed the odds of a first Federal Reserve rate cut by March to 61%, from over 65% on Tuesday, according to CME’s FedWatch Tool.
The market is still pricing in around 145 basis points of cuts by the end of the year, even as Fed officials including Governor Christopher Waller this week pushed back against expectations of rapid policy loosening.
“U.S. data has been a mixed bag but yesterday we got a very strong retail sales report indicating that there is no need to be too aggressive on rate cuts,” said Niels Christensen, chief analyst at Nordea.
“Lower rate cut expectations and risk-off sentiment is positive for the dollar,” Christensen added.
The dollar pushed as high as 148.525 yen on Wednesday for the first time since the end of November.
It was last trading 0.2% lower on the day at 147.895 yen. At the end of last week, though, it was as weak as 144.35 yen.
Investors have been steadily pricing out hawkish Bank of Japan wagers, not least due to the devastating New Year’s Day quake in central Japan. The BOJ meets on policy on Monday and Tuesday of next week.
“I think dollar-yen is going to be floating between 145 and even 150 in the near term,” a level last seen in mid-November, said Shoki Omori, chief Japan desk strategist at Mizuho Securities.
Should the BOJ stick to its dovish message next week, and if Fed Chair Jerome Powell strikes a similar posture to Waller at the U.S. central bank’s policy meeting on Jan. 30-31, the dollar could push beyond 150 yen by the start of February, Omori said.
“Japanese officials could start to come in and verbally intervene at any time now” to try and slow the yen’s decline, he added.
The euro () was little changed at $1.0880 after the accounts from the European Central Bank’s December meeting offered few clues about the timing of the first rate cut.
The single currency had bounced from a five-week low of $1.08445 on Wednesday, supported by ECB President Christine Lagarde’s comments to Bloomberg that there would likely be majority support among ECB officials for an interest rate cut in the summer, later than market expectations for a spring cut.
Sterling was also flat at $1.2676, following a rally on Wednesday after data showed inflation unexpectedly accelerated in December, reinforcing expectations the Bank of England will be slower to cut rates than its peers.
The British currency’s 0.3% jump on Wednesday snapped a three-day decline against the greenback, and limited Wednesday’s gains for the , of which sterling is a part.
The Australian dollar was up 0.2% at $0.6566, recovering from losses as steep as 0.4% to $0.65255 earlier when data showed an unexpected drop in employment in December, adding to the case that rates have peaked in the country.
“There’s clearly some technical support around $0.6520 which bears are hesitant to short above,” said Matt Simpson, senior market analyst at City Index.
“Yet the jobs report doesn’t provide any meaningful reason to be long AUD,” he added. “And that means its next directional move remains in the hands of Fed expectations, and therefore the U.S. dollar.”
Forex
Dollar bounces after sharp loss; euro retreats on Lagarde comment
Investing.com – The US dollar edged higher Monday, rebounding after the sharp losses at the end of last week on signs of cooling inflationary pressures, while the euro slipped following dovish comments from ECB head Christine Lagarde.
At 05:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher to 107.750, after falling sharply from a two-year high on Friday.
Dollar bounces after sharp retreat
The dollar bounced Monday after falling sharply on Friday as the Federal Reserve’s preferred showed moderate monthly rises in prices, with a measure of underlying inflation posting its smallest gain in six months.
That eased some concerns about how much the may cut in 2025, which had risen following the hawkish US rate outlook after the last Fed policy meeting of the year.
That said, traders are pricing in 38 basis points of rate cuts next year, shy of the two 25 bp rate cuts the Fed projected last week, with the market pushing the first easing of 2025 out to June, with a cut in March priced at around 53%.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Eurozone “very close” to ECB inflation goal
In Europe, fell 0.1% to 1.0414, near a two-year low it touched in November, down 5.5% this year, after European Central Bank President said the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“We’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%,” Lagarde said in an interview published by the Financial Times on Monday.
Earlier in December, Lagarde had said the central bank would cut interest rates further if inflation continued to ease towards its 2% target, as curbing growth was no longer necessary.
The lowered its key rate last week for the fourth time this year, and is likely to cut interest rates further in 2025 if inflation worries fade.
traded largely flat at 1.2571, after data showed that Britain’s economy failed to grow in the third quarter, adding to the signs of an economic slowdown.
The Office for National Statistics lowered its estimate for the change in output to 0.0% in the July-to-September period from a previous estimate of 0.1% growth.
The ONS also cut its estimate for growth in the second quarter to 0.4% from a previous 0.5%.
policymakers voted 6-3 to keep interest rates on hold last week, a bigger split than expected, amid worries over a slowing economy.
Yuan hits one-year high
In Asia, rose 0.2% to 156.72, after rising as far as 158 last week following dovish signals from the .
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
edged 0.2% higher to 7.3080, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
Forex
Asia FX muted, dollar slips from 2-yr high on soft inflation data
Investing.com– Most Asian currencies moved little on Monday, while the dollar steadied from a tumble from over two-year highs after soft U.S. inflation data spurred some hopes that interest rates will still fall in 2025.
Asian currencies were nursing steep losses against the dollar from last week, although they trimmed some declines on Friday after the soft inflation data. The outlook for regional markets also remains clouded by uncertainty over U.S. interest rates and policy under incoming President Donald Trump.
Dollar slips from 2-yr high as PCE data misses expectations
The and both steadied on Monday after clocking sharp losses on Friday.
The greenback slid from an over two-year peak after data- the Federal Reserve’s preferred inflation gauge- read softer-than-expected on Friday.
Still, the reading remained above the Fed’s 2% annual target, keeping uncertainty over interest rates in play.
The Fed had cut interest rates by 25 basis points last week, but flagged a slower pace of interest rate cuts in the coming year, citing concerns over sticky inflation and resilience in the labor market.
The Fed is expected to cut rates twice in 2025, although the path of rates still remains uncertain.
Markets took some relief from the government avoiding a shutdown after lawmakers approved an eleventh-hour spending bill.
Asia FX pressured by rate uncertainty
Despite clocking some gains on Friday, most Asian currencies were still trading lower for December, as the outlook for interest rates remained uncertain.
The Japanese yen’s pair rose 0.1% to around 156.59 yen, after rising as far as 158 yen last week following dovish signals from the Bank of Japan.
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
The Chinese yuan’s pair rose 0.1%, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
The Singapore dollar’s pair was flat ahead of inflation data due later in the day, while the South Korea’s won’s pair rose 0.3%.
The Australian dollar’s pair rose slightly after sinking to a two-year low last week.
The Indian rupee’s pair steadied after hitting a record high of over 85 rupees last week.
Forex
Dollar to weaken less than expected next year: UBS
Investing.com — The dollar recently notched fresh year-to-date highs against its rivals and is likely to remain strong after the Federal Reserve leaned more hawkish at its recent December meeting, analysts from UBS said in a recent note.
“While we still expect the dollar to fall, we now see less weakness in 2025 given these factors and adjust our forecasts slightly,” analysts from UBS said in a recent note.
The less bearish view on the USD comes in the wake of the greenback making fresh year-to-date highs in key exchange rates and the expectations for fewer U.S. rate cuts.
“The USD has been driven lately by prospects of fewer Fed rate cuts and tariff risks,” the analysts said.
The euro has been particularly affected by dollar strength, but is expected to trade around $1.05 against the greenback in the first half of 2025, the analysts forecast.
But a significant drop toward parity for the can’t be ruled out, “due to real tariff threats or further divergence in the macro backdrop between the US and Europe,” the analysts added.
Still, any move toward parity should be short-lived, the analysts said, amid expectations for the economic backdrop in Europe to improve in the second half of the year, narrowing the divergence between Europe and U.S. yields.
“The trajectory back into the middle of the trading range or higher, 1.08 to 1.10, comes with the view that two-year yield differentials will still narrow to some degree and better macro data out of Europe provide some underlying support for EURUSD in 2H25,” the analysts said.
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