Forex

Dollar on back foot ahead of CPI; sterling slips

Published

5 months ago

August 14, 2024

Investing.com – The U.S. dollar steadied Wednesday, after overnight weakness, ahead of the release of the July consumer price index, while sterling weakened after benign inflation data.

At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, edged lower to 102.277, after slumping 0.5% overnight.

Dollar on back foot ahead of CPI release

The U.S. currency retreated Tuesday after the July came in softer than expected for July, resulting in traders shifting bets slightly towards a 50 basis point cut in September.

The PPI reading ramped up hopes that a inflation reading, which is due later on Wednesday, is also expected to show inflation remained benign in July, providing the Federal Reserve with more headroom to begin trimming rates.

“We have been bearish on the dollar of late and generally optimistic on sentiment stabilising, and a benign US CPI print, in our view, could clear the path for more risk-on/dollar-off trading into the core PCE release on 30 August and jobs figures on 6 September,” said analysts at ING, in a note.

The at the end of July kept the policy rate in the same 5.25%-5.50% range it has been for more than a year, but signaled that a rate cut could come as soon as September if inflation continued to cool.

Sterling slips after UK inflation release

In Europe, traded 0.2% lower at 1.2837 after data showed that British rose by a smaller amount than expected in July, boosting the chances of another rate cut by the Bank of England.

The annual rate of consumer price inflation increased to 2.2% after two months at the Bank of England’s 2% target, but this was below the 2.3% forecast.

The BoE cut interest rates from a 16-year high of 5.25% at the start of this month, and financial markets now price in a 44% chance of a quarter-point BoE rate cut in September, up from 36% before the data was released.

climbed 0.3% to 1.1019, rising to levels not seen this year after France’s European Union-harmonised 12-month rose to 2.7% in July, from 2.5% in the period through June.

The started cutting interest rates in June, and many expect the policymakers to agree to another reduction in September, although rising inflation would make this more unlikely.

“We see the uptick in EUR/USD into the upper half of the 1.09-1.10 range as the start of a longer-lasting upward trend,” said ING. “We target a move to 1.12 in the near term on the back of a tighter rate spread and stabilising risk sentiment.”

Kiwi dollar slumps after rate cut

In Asia, fell 1% to 0.6014 after the cut interest rates by 25 bps, with Governor Adrian Orr stating that the bank had also considered a 50 bps reduction.

The RBNZ flagged progress in inflation reaching its 1% to 3% annual target, and also noted market expectations that interest rates will fall by 100 basis points by mid-2025.

rose 0.2% to 147.15, steadying after strong overnight gains, although further strength in the yen was limited by improved risk appetite.

Second-quarter data from Japan is due on Thursday, and is likely to factor into the Bank of Japan’s plans to trim rates.

dropped 0.1% to 7.1470, with and data due later this week.

Forex

UBS rises its USD/JPY forecast

Published

8 hours ago

January 17, 2025

UBS revised its inflation forecast for Japan, projecting higher inflation rates in the coming years due to a robust US dollar and increased energy prices.

The UBS FX team adjusted their foreign exchange outlook, now expecting the exchange rate to hit 150 by the end of 2025, up from the previous estimate of 145. This adjustment is based on the backdrop of a strong US dollar.

The revised forecast anticipates a 0.1-0.2 percentage point increase in inflation for 2025 and 2026, driven by higher energy costs and consumer price index (CPI) goods. The core-core CPI, which excludes volatile fresh food and energy prices, is projected to remain above 2% through 2025.

UBS now expects it to reach 2.0% year-over-year at the end of 2025, a slight uptick from the previous estimate of 1.9%. UBS also highlighted that food inflation, currently at 4.2% year-over-year, is expected to stay at similar levels at least through the first half of the current year. This is attributed to the yen’s depreciation and unstable supply conditions.

The research firm notes that while service inflation has been relatively low at 1.5%, particularly due to weak housing rent and public services prices, an acceleration in overall service inflation is anticipated.

However, the development of inflation in specific service components, such as housing rent and public services, which respectively account for 37% and 25% of the weight in services within the inflation calculation, remains uncertain. U

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Forex

Bank of America flags dollar longs as crowded, eyes global inflation concerns

Published

8 hours ago

January 17, 2025

Bank of America (BofA) analysts highlighted a shift in market sentiment, identifying long U.S. dollar positions as the most crowded trade, and now a significant headwind for the currency. This perspective aligns with BofA’s recent reports on the U.S. dollar, emphasizing the stark contrast between current market positions and historical trends.

The analysts’ findings indicate a growing apprehension among market participants regarding global inflation, particularly with a re-acceleration anticipated by 2025. Euro Area inflation expectations are notably visible, underscoring the broader concerns about inflationary pressures.

Additionally, while emerging market (EM) investors seem to have discounted the worst-case scenarios related to tariffs, the uptick in sentiment is perceived as tentative. The cautious stance of EM investors reflects the uncertainty and challenges in the global trade environment.

BofA’s analysis suggests that the heavy positioning in favor of the U.S. dollar could be problematic. The report, dated January 14, 2025, points out that the extent of USD long positions is exceptional not only in a historical context but also when compared to the past year’s trends.

Furthermore, the discrepancy between conviction and positioning is evident, as only a fifth of respondents consider long USD their highest conviction trade. This is despite 42% of those surveyed expecting the peak of 10-year U.S. Treasury yields to exceed 5%, as revealed in a separate exhibit from the bank’s research.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Forex

Dollar set for losing week; sterling falls further after retail sales

Published

8 hours ago

January 17, 2025

Investing.com – The US dollar edged higher Friday, but was on course for a weekly loss after core inflation eased, while sterling retreated following the release of weak retail sales data.

At 04:30 ET (09:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 108.930, but was set for a drop of about 0.5% in the week, which would snap a six-week winning streak.

Dollar set for weekly loss

The dollar has retreated this week after cooler than expected data raised the possibility of easier monetary policy this year, even after policymakers at the Federal Reserve indicated they would be cautious in its approach to cutting rates this year.

Fed Governor said on Thursday three or four rate cuts are still possible if economic data weakens further.

“The perception at the end of a busy week in macro news is that the optimism around a month-on-month slowdown in core inflation is cautious at best,” analysts at ING said, in a note.

“The inherently forward-looking markets are factoring in Trump’s inflationary policies from a starting point that is already significantly above the target. So, despite stretched positioning and short-term overvaluation, the dollar continues to dodge true catalysts for a correction.”

Sterling falls after retail sales dip

In Europe, traded 0.4% lower to 1.2197, after British fell unexpectedly in December, dropping by 0.3% in month-on-month terms in December after a downwardly revised 0.1% expansion in November, raising the risk of an economic contraction in the fourth quarter.

Data released earlier in the week showed that the British economy barely returned to growth in November.

The is expected to cut interest rates in February, with two rate cuts in 2025 largely priced into the market.

fell slightly to 1.0300, ahead of the release of the final eurozone for December.

“EUR/USD appears to have found a short-term anchor at the 1.0300 handle. That is a level that embeds a 2.5-3% risk premium (i.e. undervaluation), which we suspect will not be materially trimmed until more clarity on Trump’s protectionism policy emerges,” ING added.

Yen nears one-month high

In Asia, climbed 0.3% to 155.79, near its strongest level in nearly one month.

The yen firmed sharply this week as several Bank of Japan officials suggested that an interest rate hike was possible when the central bank meets next week.

traded 0.1% lower to 7.3289, after hitting an over one-year high this week.

China’s grew 5.4% in the fourth quarter, more than expectations of 5%, as a barrage of recent stimulus measures bore fruit.