Forex

Dollar rebounds after hefty losses; euro, sterling slip

Published

5 months ago

August 6, 2024

Investing.com – The U.S. dollar rose Tuesday, reversing some of the recent losses as a degree of calm returned to the foreign exchange markets.

At 06:20 ET (10:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher to 102.907, after falling to a seven-month low on Monday.

Dollar rebounds after hefty losses

The dollar has been hit hard of late by fears of a U.S. recession after a batch of weak readings on the labor market, which ramped up bets that the Federal Reserve will have to cut rates more than initially expected.

Traders now expect 110 basis points of easing this year from the Fed, pricing in an 80% chance of a 50 bps cut in September, after having fully priced in a 50 bps cut on Monday.

U.S. central bank policymakers pushed back on Monday against the notion that weaker-than-expected July job data means the economy is in recessionary freefall, but also warned that the Federal Reserve will need to cut rates to avoid such an outcome.

“Jobs numbers come in weaker than expected, but not looking yet like recession,” said Chicago Federal Reserve President . “I do think you want to be forward-looking of where the economy is headed for making the decisions.”

Euro, sterling hand back some gains

In Europe, the dollar gained ground against both the euro and sterling, with the European Central Bank and the Bank of England having already started cutting interest rates to stimulate their respective economies.

fell 0.4% to 1.0911, having hit a seven-month high of 1.1009 on Monday, with data showing that fell 0.3% in June in the eurozone, suggesting consumers remained stretched.

On the flip side, rose by more than forecast in June, rising by 3.9% on the previous month, providing a glimmer of hope for Europe’s largest economy.

slipped 0.5% to 1.2706, handing back some of its recent gains as the dollar strengthened.

The cut interest rates last week, reducing the benchmark rate by a quarter-point to 5%.

Yen slips for first time in August

In Asia, rose 0.2% to 144.47, with the yen weakening for the first day this month, consolidating after the striking moves of recent days.

The yen had benefited from increased safe haven demand as broader financial markets crashed. Hawkish signals from the – which raised interest rates and flagged more hikes – also boosted the currency, as did an unwinding carry trade.

rose 0.3% to 7.1504, with the yuan weakening in anticipation of key trade and inflation data this week.

fell 0.2% to 0.648, with the Aussie dollar slipping after comments from Governor Michele Bullock, who suggested rate cuts were still further away.

Australia’s central bank held interest rates steady on Tuesday as expected, while reiterating that it was not ruling anything in or out to control inflation.

Forex

UBS rises its USD/JPY forecast

Published

20 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

20 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

20 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.