Forex

Dollar retreats from highs as risk appetite improves; euro edges up after PMIs

Published

1 year ago

January 24, 2024

Dollar retreats from highs as risk appetite improves; euro edges up after PMIs

Investing.com – The U.S. dollar retreated from six-week highs in early European trade Wednesday amid rising risk appetite, while the euro struggled to push higher ahead of this week’s European Central Bank policy meeting.

At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% lower at 103.107, not far below the highest level since early December at 103.82, reached in the previous session.

Dollar retreats from highs

Positive corporate earnings, from streaming giant Netflix (NASDAQ:) in particular, have resulted in a boost to risk appetite Wednesday, causing the dollar to edge lower.

However, the greenback remained close to recent highs as strong inflation and labor market data saw traders largely scale back expectations for early interest rate cuts by the Fed.

Focus now turns to fourth-quarter data, due on Thursday, and Friday’s data – the Fed’s preferred inflation gauge. Any signs of resilience in economic growth and inflation give the Fed more impetus to keep rates higher for longer.

“We don’t have a strong bearish view on the dollar in the short-term, but yesterday’s moves did appear overdone in an environment where Fed funds futures still price in 130/140bp of cuts this year,” said analysts at ING, in a note.

The is widely expected to maintain rates at 23-year highs next week, but traders are still looking for the central bank to eventually begin trimming rates this year.

Euro struggles to gain after weak PMIs

In Europe, traded 0.1% higher at 1.0865, with the euro struggling to benefit from the positive risk sentiment after the release of data showing that Germany’s economic downturn worsened this month with both and activity contracting.

Germany’s Ifo institute downgraded its 2024 economic growth forecast on Wednesday, and now expects Europe’s largest economy to grow by 0.7% this year instead of 0.9% previously forecast in mid-December.

The meets on Thursday, and is virtually certain to keep rates steady at elevated levels. Investors will thus focus on the tone of the policy statement and President Christine Lagarde’s press conference.

That said, “a data-dependent ECB makes markets data-dependent, meaning upcoming releases on inflation and activity in the eurozone may well have a greater market impact than ECB members’ comments,” ING added.

traded 0.2% higher at 1.2712, ahead of the release of U.K. data for January, which is expected to show the U.K. economy remains in expansion territory as a whole.

Yen appreciates as yields rise

In Asia, fell 0.5% to 147.57, with the yen boosted by Japanese government bond yields rising to six-week highs after central bank chief said on Tuesday that the prospects of achieving the BOJ’s inflation target were gradually increasing.

traded 0.1% lower to 7.1661, with the yuan seeing some strength this week after Bloomberg reported that the Chinese government was planning a hefty support package for local stock markets.

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Forex

PBoC adjusts policy amid rising USD demand

Published

13 hours ago

January 23, 2025

The People’s Bank of China (PBoC) responded to increasing demand for the US dollar by adjusting its cross-border macroprudential parameter.

The central bank’s decision to raise the parameter from 1.50 to 1.75 allows domestic corporations and financial institutions to engage in more cross-border borrowing.

The adjustment came as the foreign exchange settlement balance for banks’ clients showed a deficit of $10.5 billion, marking the first negative reading since July 2024. This deficit contrasts with the previous month’s figures. The rise in demand for the US dollar was particularly noticeable in service trade transactions.

Recent weeks have seen domestic importers actively purchasing US dollars through foreign exchange forwards. This move is a strategy to hedge against potential risks associated with tariffs, which has contributed to an upward push on forward points.

The PBoC’s policy change on January 13 reflects efforts to manage market expectations regarding foreign exchange rates.

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

Forex

Macquarie sees stable USD/CAD trend, eyes 1.35 mid-year target

Published

13 hours ago

January 23, 2025

On Wednesday, Macquarie analysts provided insights into the potential future movements of the Canadian dollar (CAD) against the US dollar (USD).

They indicated that the fears of heavy-handed US import tariffs are unlikely to materialize immediately after the inauguration, suggesting that the USD’s rally against the EUR, CAD, and other currencies might not extend beyond the first quarter of the year.

The analysts highlighted that despite the initial threats of tariffs, Canada is expected to grow even closer to the United States in the coming years. This projection is based on several factors including Canada’s domestic politics, foreign policy, border and immigration policies, as well as trade and capital account flows, all of which demonstrate aligned interests with the US. The anticipated renegotiation of the United States-Mexico-Canada Agreement (USMCA) is expected to cement this relationship further.

According to Macquarie, this closer relationship between Canada and the US will lead to a much more stable exchange rate in the future. They predict that as a result of these developments, the USD/CAD pair will experience a downward drift, potentially reaching a mid-year target of 1.35.

The stability in the USD/CAD exchange rate is seen as a reflection of the ‘merger trend’ context, where the two economies continue to integrate and align, leading to less exchange rate fluctuation. Macquarie’s analysis projects a calmer period ahead for the currency pair, which has historically been influenced by trade policies and geopolitical factors.

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

Forex

Dollar edges higher; Trump’s speech at Davos in spotlight

Published

13 hours ago

January 23, 2025

Investing.com – The US dollar lifted slightly Thursday, but remained in a tight trading range ahead of a speech by President Donald Trump at the World Economic Forum.

At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher to 108.150, after starting the week with a drop of over 1%.

Dollar treads water

The dollar has largely treaded water over the last couple of days as traders await more clarity over President Donald Trump’s plans for tariffs, following the sharp fall on Monday as his first day in office brought a barrage of executive orders, but none on tariffs.

He has subsequently talked about levies of around 25% on Canada and Mexico and 10% on China from Feb. 1, as well as mentioning duties on European imports, but without concrete action.

Trump speaks later in the session at the World Economic Forum in Davos, Switzerland, and traders are eagerly awaiting any comments on this topic as well as for his position on major geopolitical and economic issues such as the Ukraine-Russia war and the economic rivalry with China.

“This week’s dollar correction has not gone too far. Despite the heavy one-way positioning of the dollar, investors lack clarity on the timing of Trump’s tariff threats, preventing them from reducing dollar holdings,” said analysts at ING, in a note.

Also causing traders to pause for breath is the spate of central bank policy decisions due over the next week, including the on Friday, ahead of the and the next week.

Euro lower ahead of ECB meeting

In Europe, slipped 0.1% lower to 1.0404, with the single currency weak ahead of next week’s ECB meeting, with an interest rate cut largely seen as a done deal.

“This week’s EUR/USD bounce has been pretty muted so far,” said ING. “There is no way investors can expect to hear an ‘all-clear’ signal on tariffs. And keeping trading partners off balance/guessing is a tactic that kept the dollar reasonably well bid during Trump’s last tariff regime in 2018-19.”

traded 0.1% lower to 1.2304, while rose 0.2% to 11.3035 ahead of a policy-setting meeting by the later in the session.

“Norges Bank is widely expected to keep rates on hold today,” ING said. “On the whole, the key variables monitored by NB have not clearly argued a rate cut should be pushed beyond March. Also, the risks to global growth related to Trump’s protectionism plans should encourage policymakers to allow some breathing room with a rate cut before the end of the first quarter.”

BOJ meeting to conclude Friday

In Asia, traded largely unchanged at 156.47, ahead of the Bank of Japan’s two-day policy meeting, which concludes on Friday.

The BoJ is widely expected to raise interest rates as recent inflation and wage data have been encouraging, and the central bank is likely to signal further interest rate hikes if the economy maintains its recovery

traded 0.2% higher to 7.2877, with the Chinese currency weaker on fears Trump will confirm US tariffs on Chinese imports, hitting the second largest economy in the world.