Forex
Dollar holds steady as investors wait for Fed guidance
By Saqib Iqbal Ahmed
NEW YORK (Reuters) -The dollar was firm against the euro on Monday as investors awaited further clues to help them figure out the path of U.S. interest rates in the wake of cautious comments from Federal Reserve officials, even as inflation showed signs of cooling.
Atlanta Fed President Raphael Bostic said on Monday it will take a while for the U.S. central bank to be confident that inflation is on track back to the central bank’s 2% goal.
“The issue right now is when are we going to be certain that inflation is clearly on a path back to 2%. I think it’s going to take a while before we know that for sure,” Bostic said in an interview with Bloomberg Television.
Besides Bostic, several other Fed speakers are due to speak on Monday and later in the week. Markets will also focus on minutes of the Fed’s last meeting, which are due on Wednesday.
The euro was 0.05% down against the dollar at $1.0836. Against the yen, the dollar was up 0.3% to 156.15 yen.
Data last week showed U.S. consumer prices rose less-than-expected in April, leading to markets pricing in 50 basis points of Fed rate cuts this year. Still, various Fed officials have expressed caution about when rates may fall.
With little in the way of economic data on the calendar for the day, most major currency pairs clung to tight trading ranges on Monday.
“I think after CPI passed last week the FX market is rather lacking a catalyst at this stage,” said Michael Brown, market analyst at online broker Pepperstone in London.
“While the FOMC calendar is, again, stupendously busy, it seems there’s little fresh information that speakers can add at this stage, especially with the reaction function so well-signposted, another hike all but ruled out, and a couple more promising inflation figures, at least, needed to provide the requisite confidence of inflation returning towards 2% before the first cut can be delivered,” Brown said.
Survey-based gauges of the economy for the euro zone, Germany, the UK and the U.S. are due this week.
The euro remained not far from the nearly two-month high of $1.0895 it touched last week. It is up 1.8% so far in May, boosted by a fall in the dollar on the back of softer U.S. growth and inflation data, as well as a pickup in the euro zone economy.
With the Japanese yen weaker on the day, traders remained on alert for signs of government intervention. The currency has moved in tight ranges in the past couple of trading days after a tumultuous start to May in the wake of suspected rounds of currency interventions by Tokyo to prop up the yen.
Sterling was about flat on the day after touching a two-month high of $1.2711, and was last just below that level, ahead of a UK inflation report due on Wednesday.
The Australian dollar was down 0.3% at $0.6671. The has risen 3.1% this month amid high Australian inflation. Monday’s weakness in the commodity-linked currency despite strength in commodity prices bodes ill for the near-term outlook for the Australian dollar, Pepperstone’s Brown said.
“(The weakness) on a day with commodities rallying and equities solid enough, (is) perhaps a canary in the coal mine for antipodean bulls,” Brown said.
In cryptocurrencies, bitcoin was little changed on the day at $67,027, just shy of the five-week high of $67,712 touched in the previous session.
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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