Forex

Dollar mixed in tight trading range before Fed statement

Published

9 months ago

January 31, 2024

Dollar mixed in tight trading range before Fed statement

By Karen Brettell

NEW YORK (Reuters) -The dollar edged lower against the euro and higher against the yen on Tuesday, but failed to find strong direction ahead of the conclusion of the Federal Reserve’s two-day meeting.

The U.S. central bank is expected to leave interest rates unchanged on Wednesday and investors will focus on any clues from Fed Chairman Jerome Powell on the likelihood of a rate cut in March.

Solid U.S. economic data has led traders to pare bets of a March cut to a 42% probability, from around 89% a month ago, according to the CME Group’s (NASDAQ:) FedWatch Tool.

The Fed may “feel more confident than they were in December that rates are restrictive enough to bring inflation down,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

But the Fed also could indicate that it is “not in as much of a hurry as the market expects to cut rates,” Chandler added. The central bank could also suggest that it does not want rates to be too restrictive as it aims to generate a soft economic landing, Chandler noted.

Many analysts expect the Fed’s first rate cut will be aimed at preventing too wide a gap between inflation and the fed funds rate, as this would tighten financial conditions more than the Fed intends.

Treasury yields fell and the dollar weakened after Powell in December indicated that the Fed was pivoting to an easing cycle.

The was last down 0.07% at 103.39. The currency is largely seen as consolidating before Wednesday’s Fed decision and highly anticipated U.S. jobs data for January due on Friday.

Data on Tuesday showed that U.S. job openings unexpectedly rose in December while U.S. consumer confidence increased to a two-year high in January.

Friday’s data is expected to show that employers added 180,000 jobs in January.

The euro gained after data showed the euro zone avoided a technical recession in the fourth quarter. It was last up 0.13% at $1.08460.

Gross domestic product (GDP) in the 20 countries sharing the euro was flat in the fourth quarter against the previous three months, mainly because of strong growth in Portugal and Spain and a modest increase in Italy, while the German economy shrank in the final three months of 2023.

The dollar has rebounded against the single currency this year on expectations that the U.S. economy will fare better than the euro zone.

Investors are fully pricing in a rate cut by the European Central Bank in April.

“For the ECB, (Tuesday’s) figure eases the pressure somewhat, but it is clear that the so-called soft landing being pursued by (ECB President Christine) Lagarde has been somewhat softer than many would have liked,” said Joshua Mahony, chief market analyst at Scope Markets.

Sterling slid 0.11% to $1.26925 ahead of the Bank of England’s monetary policy meeting this week.

The U.S. currency rose 0.09% to 147.62 against the yen.

Japan’s jobless rate fell to 2.4% in December from the previous month, government data showed on Tuesday, just under economists’ median forecast of 2.5% in a Reuters poll.

In cryptocurrencies, bitcoin rose 0.91% to $43,555.

Forex

US dollar gains as US election draws nearer – UBS

Published

15 hours ago

October 17, 2024

Investing.com – The US dollar has gained more ground as the US presidential election draws near, UBS noted, with the market seeing rising odds of a win for Republican candidate Donald Trump.

A new USD-positive over the past week has been media reports of somewhat better outlook for Donald Trump in the latest polls, as outcomes that allow for policies such as more aggressive tariffs are viewed as more USD positive.

“Higher odds of a Trump presidency are likely to be associated with a stronger USD near term,” said analysts at UBS, in a note dated Oct. 16.

Where does this leave us now with our USD views?

Our expected ranges between Sep–Dec 2024 incorporated the possibility of a material USD rebound between now and year end, even if our year-end forecasts see a modestly lower USD from current levels.

Last week, with an eye to our year end forecast, we entered a long call reverse knockout, but we are not willing to implement a similar trade yet for and .

The spot is still far enough from our range extremes and high JPY implied volatility and negative carry make long JPY positions unattractive so close to US elections.

Turning to this week’s ECB meeting, the market is very confident that another 25bp rate cut will be delivered and we do not have a strong reason to disagree.

Market expectations are very muted for any form of surprise, and risk reversal skews bid again for EUR puts point to a market that is already primed for the risk of EUR softness.

With market pricing in line with our economists’ terminal rate expectations, we see EUR/USD as more exposed to US developments near-term, leaving us reluctant to fade recent softness on ECB reasons alone.

At 06:30 ET (10:30 GMT), EUR/USD rose 0.1% to 1.0894, USD/JPY gained 0.1% to 149.34 and AUD/USD fell 0.2% to 0.6685.

Forex

Sell euro rallies around the ECB meeting – Citi

Published

15 hours ago

October 17, 2024

Investing.com – The European Central Bank holds its latest policy-setting meeting later this week, and Citigroup advises selling any rallies in the euro around this key event.

Markets are pricing in around 49 basis points of easing over the remaining two ECB meetings this year, which could limit dovish repricing around Thursday’s event, according to analysts at Citi, in a note dated Oct. 15.

“We see scope for a tactical bounce in EUR around this Thursday’s ECB meeting, which we like fading into November as US election risk premium materializes,” Citi said.

That said, “we like fading any subsequent rallies in EUR as we approach November and US election risk premium gets better priced.”

There is some evidence of this unfolding, the bank added, as EUR looks undervalued on its short-term fair value model and as Citi’s FX Positioning data suggests adding to EUR shorts.

“But our broader FX election basket still screens as undervalued relative to Trump betting markets, and we remain short EURUSD in both spot and options,” says Citi. “We would look to sell any retest of the 1.10 double top neckline — any break above there risks a move towards our adjusted stop of 1.1050, but if that resistance holds, we have higher conviction of a move towards our (and the double top) target of 1.08, with potential overshoot towards 1.07.”

At 05:25 ET (09:25 GMT), traded largely flat at 1.0892, almost 2% lower over the last month.

Forex

Dollar gains on trimmed rate expectations; sterling weakens post inflation

Published

15 hours ago

October 17, 2024

Investing.com – The U.S. dollar edged higher Wednesday, trading near two-month peaks on expectations of modest rate cuts from the Federal Reserve this year, while sterling slumped after benign inflation data.

At 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 103.180, remaining close to Monday’s two-month peak.

Dollar helped by trimmed rate cut expectations

Recent data indicating a resilient economy coupled with slightly hotter-than-expected inflation in September have led market participants to trim bets for an aggressive U.S. rate reduction.

Adding to these expectations were comments from Atlanta Federal Reserve President on Tuesday, who said he had penciled in just one more interest rate reduction of 25 basis points this year when he updated his projections for last month’s U.S. central bank meeting.

Most market participants see two more cuts this year, totaling 50 bps, and traders currently lay 92% odds for a 25-basis-point cut when the Fed next decides policy on Nov. 7, with an 8% probability of no change, according to CME Group’s (NASDAQ:) FedWatch Tool.

Sterling slumps after inflation release

In Europe, slumped 0.5% to 1.3003, after data showed British inflation fell more than expected in September, paving the way for a rate cut next month.

The UK’s fell to 1.7% on an annual basis, below the forecast 1.9% and the 2.2% recorded a month earlier.

This was the first time it had fallen below the Bank of England’s 2% target since April 2021, and added to data seen earlier in the week that showed British pay grew at its slowest pace in more than two years.

“The data is unequivocally dovish for the Bank of England and paves the way for rate cuts at the two remaining meetings this year (November and December),” said analysts at ING, in a note.

“Given the comments by Governor Andrew Bailey earlier this month suggesting the BoE could increase the pace of easing, markets may be tempted to price in some chance of a 50bp rate cut in November.”

traded 0.1% lower to 1.0882, ahead of Thursday’s policy-setting meeting by the European Central Bank.

The has already lowered rates twice this year and a cut to the 3.5% deposit rate this week is almost fully priced in by financial markets.

“EUR/USD is predominantly driven by external factors. The substantial drop in oil prices has narrowed the scope for a further drop based on market factors, but we continue to suspect that pre-US election positioning should favor a weaker EUR/USD,” said ING.

Yuan nurses weekly losses

fell slightly to 7.1179, with the yuan nursing losses this week as sentiment soured over the country’s plans for more stimulus.

China’s Ministry of Finance said it will enact a slew of fiscal measures to boost growth, but did not specify the timing or size of the planned measures, spurring uncertainty over its effectiveness.

rose 0.2% to 149.43, with the pair climbing closer to the 150 resistance level.

data due later this week is expected to offer more cues on the Bank of Japan’s plans to hike rates further.