Forex
Dollar retains strength ahead of payrolls; sterling slips again
Investing.com – The US dollar edged higher Friday, holding on to recent gains ahead of the release of the highly influential monthly jobs report, while sterling continued to retreat.
At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 109.040, on course for a weekly gain of 0.3%.
This would be its sixth consecutive weekly gain, its longest run since an 11-week streak in 2023.
Dollar retains strength ahead of payrolls
The dollar traded near its strongest levels since November 2022, holding on to recent gains as the US returned from a holiday to honor former President Jimmy Carter.
The focus was squarely on data for December, due later in the session, as traders look for more cues on the US economy and the future path of interest rates.
The of the Fed’s December meeting, released on Wednesday, showed policy makers remain concerned over the potential for inflation to flare up again, especially given the likely impact of the expansionary and protectionist policies under President-elect Donald Trump.
US nonfarm payrolls data is expected to show the economy added 154,000 jobs in December on top of the 227,000 in November, with holding at 4.2%.
Anything stronger would add to the case for fewer Federal Reserve rate cuts in 2025, boosting the dollar.
“We think the balance of risks is tilted to the upside for the dollar today, as robust jobs figures could prompt markets to price out a March cut and potentially push the first fully-priced move beyond June,” said analysts at ING, in a note.
“We would still argue that with inflation concerns back on the rise – although the Fedspeak has been quite heterogeneous on that topic – next Wednesday’s CPI report could have deeper market ramifications.”
Sterling set for hefty weekly loss
In Europe, edged higher to 1.0303, helped by data showing that rose 0.2% on the month in November, an improvement from the prior month’s drop of 0.3% and above the fall of 0.1% expected.
That said, the euro remains weak, with the European Central Bank widely expected to ease interest rates by around 100 basis points in 2025, around double the cuts expected by the US central bank, with the regional economy still very weak.
“Markets are pricing a good deal of negatives into the euro at this stage, and perhaps the euro may be penalised less than other G10 currencies should US payrolls come in strong today,” ING added.
traded 0.2% lower to 1.2285, with sterling on course to lose 1% this week after earlier falling to a 14-month low following a selloff in UK government bonds amid concern about British finances.
“We expect higher yields to act as an additional headwind to growth via household remortgaging and weaker investment,” said analysts at Goldman Sachs, in a note.
“The rise in gilt yields reinforces our view that UK growth will disappoint in 2025, with our 0.9% real GDP growth forecast notably below consensus (1.4%), the BoE (1.5%) and the OBR (2%).”
Yuan lacks support
In Asia, rose 0.3% to 7.3513, with the Chinese currency seeing continued weakness after soft inflation data for December, released earlier in the week.
The prospect of trade tariffs under Trump also soured sentiment towards China.
dropped 0.1% to 157.85, with the Japanese currency helped by the release of stronger-than-expected data earlier Friday.
This followed on from a bigger-than-expected increase in wage growth on Thursday, and has sparked increased speculation over a January interest rate hike by the Bank of Japan.
Investing.com – The US dollar has gained strongly since the US presidential election in November, but these gains are unlikely to limit the hit that US customers are likely to face from tariffs, according to UBS.
At 08:25 ET (13:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 108.950, but was around 1.5% higher over the last month, and remained not far from the more than two-year high seen last week.
The theory is that a stronger dollar lowers US import prices, said analysts at UBS, in a note dated Jan. 17. Those lower prices would partially offset the tax payments US consumers must make to the US Treasury when buying imports.
If the US paid for the Chinese imports, then a stronger dollar would automatically reduce the amount of dollars paid (fewer dollars are exchanged to pay the renminbi price). However, the US pays for practically all its imports in dollars, so this does not happen.
If the dollar strengthens, the dollar price is unchanged, unless the exporter consciously chooses to lower the dollar price of the goods sold, UBS added.
An exporter to the US might deliberately lower dollar prices, as (in dollar terms) local currency costs are lower. But local currency costs are only a fraction of a manufacturer’s costs.
“A Chinese electronics manufacturer, importing chips (bought in dollars) and exporting computers to the US (in dollars), will probably keep their dollar prices stable—ignoring currency moves,” UBS added.
The US dollar strengthened against China’s renminbi in 2016 and 2018/19, and US import price inflation for products from China showed no noticeable break with earlier trends.
The preference seems to have been to reroute supply chains as a way of avoiding trade taxes.
Investing.com – The US dollar slumped Monday following a report that indicated that President-elect Donald Trump was set to delay imposing trade tariffs immediately upon his inauguration, an expectation which had boosted the US currency following his November election victory.
At 09:20 ET (14:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 1.1% lower to 108.020, having climbed to a more than two-year high last week.
The Wall Street Journal reported Monday that Trump is planning to issue a broad memorandum on his inauguration that directs federal agencies to study trade policies and evaluate US trade relationships with China and America’s continental neighbors—but stops short of imposing new tariffs on his first day in office.
The memo, which the WSJ has seen, suggests that debates are still ongoing within the incoming administration over how to deliver on Trump’s campaign trail promises for hefty tariffs on imports from trade rivals such as China.
The dollar has gained around 4% since the November presidential election as traders anticipated Trump’s policies will be inflationary, necessitating higher interest rates for a longer period.
“Financial markets are on tenterhooks to see what executive orders newly elected US President Donald Trump will enact on his first day,” said analysts at ING, in a note.
“FX markets are most interested in what he has to say about tariffs and what kind of pain the Oval Office plans to inflict on major trade partners.”
Bank of America (BofA) noted a significant increase in repo rates during the week of January 13 due to heightened liquidity demand triggered by tax payments and limited funding provided by the People’s Bank of China (PBoC).
The liquidity squeeze was most noticeable on January 16, the day following the tax payment deadline, with DR007 and R007 reaching 2.34% and 4.19%, respectively.
The PBoC maintained its stance on defending the exchange rate stability, resulting in the tightness of (RMB) liquidity being felt in the offshore market as well.
On January 9, the central bank announced it would issue RMB60 billion of 6-month bills in Hong Kong, a significant increase compared to previous issuances. The coupon rate of 3.4% was notably higher than the December issuance, reflecting the tightness of CNH liquidity and subdued demand from investors.
The December FX settlement balance by banks’ clients fell further to a deficit of US$10.5 billion, the first deficit reading since July 2024. A key change from the previous month was a sharp increase in USD demand for service trade. Reports also suggest that domestic importers have been actively purchasing USD via FX forward to hedge against tariffs risk in recent weeks, which has been exerting upward pressure on forward points.
On January 13, the PBoC increased the cross-border macroprudential parameter to 1.75 from 1.50. This move allows domestic corporations and Financial Institutions (FIs) to conduct more cross-border borrowing.
Given the widened interest rate gap between China and overseas, BofA believes this is more of a symbolic move by the PBoC to anchor market’s expectation on FX.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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