Forex
Dollar posts steep weekly fall, trades below 150 yen
© Reuters. FILE PHOTO: Japanese Yen and U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration
By Herbert Lash and Iain Withers
NEW YORK/LONDON (Reuters) – The dollar posted its second-steepest weekly decline versus other major currencies this year on Friday, while the yen strengthened sharply, and the dollar traded below 150 yen, as concerns grow about the weakening global economic outlook.
Cooler-than-expected U.S. inflation data on Tuesday and Wednesday hastened market expectations for how soon the Federal Reserve will cut rates. Such a move would weaken a major dollar support and could come as early as next year’s first quarter.
The , which measures the greenback against six other major currencies, slid to lows last seen on Sept. 1, while the yield on benchmark fell to a two-month low of 4.379%.
Data that showed U.S. single-family homebuilding increased marginally in October briefly supported the dollar, but with inflation the main market driver it remained lower on the day.
“The spate of recent data points towards progress being made on the inflation front,” said Bipan Rai, North America head of FX strategy at CIBC Capital Markets in Toronto. “It really feels like the initial momentum now is for the dollar to move lower.”
The dollar index fell 0.49% on the day, hitting a low of 103.85 that increased the greenback’s decline over the past five days to almost 1.8% – its biggest weekly drop since mid-July.
“Everything is pointing towards a fourth-quarter slowdown in the United States,” said Thierry Wizman, global FX and interest rate strategist at Macquarie in New York, adding that a key signal would be companies guiding growth expectations lower.
“They’re not seeing the pricing power they saw in Q3 and they’re not seeing the kind of enthusiasm on the part of customers that they were seeing in Q3 either,” Wizman said.
The euro rose 0.52% to $1.0906 after Eurostat data confirmed year-on-year inflation in the euro zone slowed sharply in October.
The yen – punished broadly this year by dollar strength – broke the 150 mark for the first time in nearly two weeks, gaining 0.69% to 149.68 to the dollar. The U.S. currency is down about 1.4% versus the Japanese currency since Monday.
Japanese authorities do not have specific exchange-rate levels in mind when deciding when to intervene in the currency market, Deputy Finance Minister Ryosei Akazawa told parliament on Friday.
The yen’s strength reflected the fact that “contracting growth concerns are rising” globally, said Lee Hardman, currency analyst at MUFG, adding that Japanese terms of trade were less impacted by falling energy prices.
Weaker-than-expected retail sales figures in Britain added to a slew of negative readings this week, but sterling nudged higher to $1.2458, up 0.42% on the day.
Sluggish data globally has raised concerns about economic prospects, but also suggests central banks may be winning in their fight against soaring prices.
Futures markets are pricing 93 basis points (bps) of cuts in the Fed’s overnight lending rate by December 2024, market bets that have contributed to dollar weakness.
Money markets have also nearly fully priced 100 bps of rate cuts in the euro zone next year. Nonetheless, European Central Bank (ECB) policymakers Robert Holzmann and Joachim Nagel said on Friday the bloc must stand ready to raise interest rates again if necessary.
ECB President Christine Lagarde said earlier in the day that the EU needs a capital markets union, adding that neither heavily indebted governments nor banks can come up with the money needed to make the bloc more productive and independent.
(This story has been corrected to say that the dollar, not the yen, traded below 150, in paragraph 1)
Investing.com – The US dollar rose in thin holiday-impacted trade Tuesday, retaining recent strength as traders prepared for fewer Federal Reserve rate cuts in 2025.
At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 107.905, near the recently hit two-year high.
Dollar remains in demand
The dollar has been in demand since the Federal Reserve outlined a hawkish outlook for its interest rates after its last policy meeting of the year last week, projecting just two 25 bp rate cuts in 2025.
In fact, markets are now pricing in just about 35 basis points of easing for 2025, which has in turn sent US Treasury yields surging, boosting the dollar.
The two-year Treasury yield last stood at 4.34%, while the benchmark 10-year yield steadied near a seven-month high at 4.59%.
“We think this hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year,” said analysts at ING,in a note.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Euro near to two-year low
In Europe, fell 0.1% to 1.0396, near a two-year low, with the set to cut interest rates more rapidly than its US rival as the eurozone struggles to record any growth.
The ECB lowered its key rate earlier this month for the fourth time this year, and President Christine Lagarde said earlier this week that the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“If the incoming data continue to confirm our baseline, the direction of travel is clear and we expect to lower interest rates further,” Lagarde said in a speech in Vilnius.
Inflation in the eurozone was 2.3% last month and the ECB expects it to settle at its 2% target next year.
traded largely flat at 1.2531, with sterling showing signs of weakness after data showed that Britain’s economy failed to grow in the third quarter, and with Bank of England policymakers voting 6-3 to keep interest rates on hold last week, a more dovish split than expected.
Bank of Japan stance in focus
In Asia, fell 0.1% to 157.03, after rising as high as 158 yen in recent sessions, after the signaled that it will take its time to consider more interest rate hikes.
edged 0.1% higher to 7.3021, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
Investing.com– Most Asian currencies moved in a tight range on Tuesday, while the dollar extended overnight gains as traders positioned for a slower pace of interest rate cuts in the coming year.
Trading volumes were muted before the Christmas break, while most regional currencies were nursing steep losses against the greenback for the year.
Asian currencies weakened sharply last week after the Federal Reserve effectively halved its outlook for rate cuts in 2025, citing concerns over sticky U.S. inflation.
Dollar near 2-year high on hawkish rate outlook
The and both rose about 0.1% in Asian trade, extending overnight gains and coming back in sight of a two-year high hit last week.
While the greenback did see some weakness after data read lower than expected for November, this was largely offset by traders dialing back expectations for interest rate cuts in 2025.
The Fed signaled only two rate cuts in the coming year, less than prior forecasts of four.
Higher U.S. rates diminish the appeal of risk-driven Asian markets, limiting the amount of capital flowing into the region and pressuring regional markets.
Asia FX pressured by sticky US rate outlook
Most Asian currencies weakened in recent sessions on the prospect of slower rate cuts in the U.S., while uncertainty over local monetary policy and slowing economic growth also weighed.
The Japanese yen’s pair fell 0.1% on Tuesday after rising as high as 158 yen in recent sessions, after the Bank of Japan signaled that it will take its time to consider more interest rate hikes.
The Australian dollar’s pair fell 0.2% after the minutes of the Reserve Bank’s December meeting showed policymakers saw an eventual easing in monetary policy, citing some progress in bringing down inflation. But they still flagged potential upside risks for inflation.
The Chinese yuan’s pair rose 0.1% and remained close to a one-year high, as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
The Singapore dollar’s pair rose 0.1%, while the Indian rupee’s pair rose 0.1% after hitting record highs above 85 rupees.
Investing.com — The dollar has surged past its post-2022 range, buoyed by U.S. economic exceptionalism, a widening interest rate gap, and elevated tariffs, setting the stage for further gains next year.
“Our base case is that the dollar will make some further headway next year as the US continues to outperform, the interest rate gap between the US and other G10 economies widens a little further, and the Trump administration brings in higher US tariffs,” Capital Economics said in a recent note.
The bullish outlook on the greenback comes in the wake of the dollar breaking above its post-2022 trading range, reflecting renewed confidence among investors driven by robust U.S. economic data and policy expectations.
A key risk to the upside call on the dollar is a potential economic rebound in the rest of the world, similar to what occurred in 2016, Capital Economics noted.
Following the 2016 U.S. election, economic activity in the rest of the world rebounded, while Trump’s tax cuts didn’t materialize until the end of 2017, and the Fed took a more dovish path than discounted, resulting in a 10% drop in the DXY on the year, which was its “worst calendar year performance in the past two decades,” it added.
While expectations for a recovery in Europe and Asia seem far off, a positive surprise for global growth “should be ruled out”, Capital Economics said.
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