Forex
Dollar rises after claims data, bitcoin continues rally
By Chuck Mikolajczak
NEW YORK (Reuters) -The dollar rose to a 13-month high in choppy trading on Thursday as investors assessed the latest labor market data and comments from Federal Reserve officials for the path of interest rates, while bitcoin continued its march toward the $100,000 level.
Weekly initial jobless claims dropped 6,000 to a seasonally adjusted 213,000, a seven-month low, and below the 220,000 estimate of economists polled by Reuters, indicating job growth rebounded after being disrupted by hurricanes and labor strikes last month.
However, the report also indicated labor market slack as it is taking longer for the unemployed to find new jobs, as unemployment rolls grew to their highest levels in three years, giving the Fed cushion to cut rates again in December.
continued its recent rally that has seen the cryptocurrency surge more than 40% since the U.S. election on expectations President-elect Donald Trump will loosen the regulatory environment for cryptocurrencies.
Bitcoin gained 4.23% to $98,458 after reaching a record high of $99,057. The Securities and Exchange Commission said Chair Gary Gensler, who challenged the crypto industry, will step down on Jan. 20.
Recent comments from Fed officials, including Chair Jerome Powell, have indicated the central bank may take a slower course in its rate cut path, while concerns that Trump’s policies could reignite inflation have helped push the dollar to a high of 107.15, its highest level since Oct. 4, 2023.
The , which measures the greenback against a basket of currencies, rose 0.39% to 107.03, with the euro down 0.64% at $1.0476 after falling to $1.0461, its lowest in 13 months.
“One could argue that the market is now pretty hawkishly priced, kind of the other side of the boat again, so it’s starting to look a little bit aggressive in some of the Fed pricing and probably in the Bank of England as well, but at the same time they are kind of talking very hawkishly lately,” said Brad Bechtel, global head of FX at Jefferies in New York.
“We’re just going to kind of chop around, there’s a lot embedded in the dollar price at current levels so I definitely wouldn’t be chasing it.”
European Central Bank chief economist Philip Lane said global economic output would suffer a “sizeable” loss if trade became more fragmented and an immediate boost to inflation would only fade over a few years.
Expectations for the path of rate cuts have been scaled back recently. Markets are pricing in a 55.9% chance of a 25-basis-point cut at the Fed’s December meeting, down from 72.2% a week ago, according to CME’s FedWatch Tool.
Federal Reserve Bank of New York President John Williams told Barron’s in an interview published on Thursday he sees inflation cooling and interest rates falling further while Federal Reserve Bank of Richmond President Tom Barkin said in an interview with the Financial Times the U.S. is more vulnerable to inflationary shocks than in the past.
In addition, Chicago Federal Reserve President Austan Goolsbee reiterated his support for further interest rate cuts and receptiveness to doing them more slowly.
Safe-haven currencies such as the Japanese yen and Swiss franc briefly strengthened on the latest potential signs of the conflict between Ukraine and Russia escalating before reversing course.
Against the Japanese yen, the dollar weakened 0.56% to 154.56 after dropping as much as 0.98%, and against the Swiss franc, the dollar gained 0.29% to 0.887 after falling as much as 0.21% on the session.
Bank of Japan Governor Kazuo Ueda said on Thursday the central bank would “seriously” take into account foreign exchange rate moves in compiling its economic and price forecasts.
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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