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Dollar rises after Powell’s comments; euro slips ahead of eurozone CPI

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Dollar rises after Powell's comments; euro slips ahead of eurozone CPI
© Reuters.

Investing.com – The U.S. dollar rose in early European trade Thursday, climbing near to a seven-week high, after the Federal Reserve kept interest rates steady and played down expectations for a March rate cut.

At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.5% higher at 103.575, close to the highest level since mid-December. 

Dollar helped by Powell’s comments

The kept interest rates unchanged at elevated levels at the conclusion of its latest policy-setting meeting on Wednesday.

That was widely expected, but the dollar received a boost after Fed Chair said that recent stickiness in inflation will keep the central bank from carrying out any monetary loosening in the near-term. 

Goldman Sachs pushed back its expectation of the Fed starting interest rate cuts to May from March, while maintaining its forecast of five 25 basis points rate cuts this year.

The influential investment bank expects four consecutive cuts starting in May through September and a final cut in December.

“The strong message coming across from the Fed yesterday was that inflation and growth were moving into ‘better balance’, rate cuts would likely be coming but more data was required to give the Fed confidence to start the cycle,” said analysts at ING, in a note. 

There’s more labor market data to study later in the session, in the shape of weekly , ahead of Friday’s key monthly report.

Euro slips ahead of eurozone CPI data

In Europe, traded 0.2% lower at 1.0791, ahead of the release of the latest eurozone inflation data, which could provide the policymakers with a push towards cutting interest rates.

The is expected to fall to 2.7% in January on an annual basis, a drop from 2.9% the prior month, and dropping closer to the ECB’s 2% medium-term target.

The European Central Bank has tamed the “greedy beast” of inflation, policymaker Joachim Nagel said earlier this week, in a departure from his usual cautious tone.

“Given the successful disinflation trends and weak activity data, it is therefore more difficult for the European Central Bank than the Fed to push back against early easing expectations,” added ING. “That is why markets still attach a 60% chance to an April rate cut from the ECB.” 

traded 0.3% lower at 1.2647 ahead of the Bank of England’s policy meeting later in the session.

The is expected to keep rates unchanged, with Governor having previously stressed it is too early to talk about lower borrowing costs, but the policymakers could offer hints that the central bank is moving towards cutting interest rates this year.

Yen gains as officials discuss monetary tightening

In Asia, fell 0.1% to 146.75, with the yen gaining slightly after minutes from the Bank of Japan’s January meeting showed policymakers actively discussing a move away from its ultra-dovish stance.

edged 0.2% higher to 7.1830, with the yuan remaining under pressure as data continued to suggest a sluggish economic recovery. 

A showed that China’s manufacturing sector grew as expected in January, but its pace of growth now appeared to be slowing, while home sales plummeted in January, pointing to more pressure on a worsening property crisis.

 

Forex

Wells Fargo sees slower US dollar decline through 2025

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Wells Fargo updated its currency market forecast, anticipating a more gradual depreciation of the U.S. dollar over the medium term than previously expected. The bank’s outlook suggests a moderate decline in the value of the dollar through much of 2025.

This projection is based on an anticipated slowdown in U.S. economic growth and a prolonged phase of monetary policy easing by the Federal Reserve.

The report highlighted that certain currencies, including the yen and the Australian dollar, might outperform the U.S. dollar in the coming year. Wells Fargo’s analysts believe that these currencies could benefit if global financial conditions remain favorable.

Additionally, the bank noted that this environment would also be supportive of currencies from emerging markets that are typically more sensitive to risk perceptions.

Wells Fargo’s analysis also pointed to political and policy developments as potential risk factors. The bank cited scenarios that could emerge from the U.S. elections, such as more expansionary fiscal policies and increased tariffs.

If such events were to occur, they could lead to a scenario where the U.S. dollar remains stronger for a longer period than currently anticipated by Wells Fargo’s analysts.

The bank’s currency forecast is closely watched by investors and policymakers, as it provides insights into how major currencies might perform against the U.S. dollar. The strength or weakness of the dollar has significant implications for international trade, investment flows, and the pricing of commodities and other assets.

In conclusion, while Wells Fargo continues to expect the U.S. dollar to depreciate moderately over the next few years, the bank has adjusted its outlook to reflect a slower pace of decline.

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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Commodity currencies struggle, carry trade churn helps yen, Swiss franc

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By Tom Westbrook and Alun John

SINGAPORE/LONDON (Reuters) -Commodity currencies slid to multi-week lows on Wednesday on weakening raw material prices, with the heaviest selling against the yen which surged to its highest in two months as short sellers bailed out ahead of next week’s central bank meeting.

The Canadian dollar hit a three-month low of C$1.38 per dollar, ahead of a likely second rate cut in as many months by the Bank of Canada at its meeting later in the day.

The Australian dollar fell as much as 0.5% and at $0.6583 was only a few pips from chart support at the early June low. It fell more than 1% on the yen to 101.79 yen and is down nearly 7% against the Japanese currency in two weeks. [AUD/]

The New Zealand dollar fell 0.6% to a near three-month low of $0.5914.

The moves tracked falling prices for industrial metals such as iron ore and , which made 3-1/2 month lows on a gloomy outlook for Chinese demand, and risk aversion in stock markets following some disappointing U.S. earnings. [MET/L]

“We’re seeing softer demand in China and Asia in general and the and just being pulled down,” said Jason Wong, senior markets strategist at BNZ in Wellington.

The euro suffered after soft business activity dataand was last down 0.1% against the dollar at $1.10842 and fell 0.14% on the pound to 83.99 pence as the picture looked perkier in Britain.. [GBP/]

But the European common currency continued to climb against peers to the north, and hit a new eight-month top on the Norwegian crown of 12.00 crowns and a two-month high of 11.727 on the Swedish crown.

“These are the two least liquid currencies in G10, and we suspect markets are particularly punishing this aspect and rebuilding those shorts that had been trimmed throughout May and June,” said Francesco Pesole FX strategist at ING.

In Asia, the risk of a rate hike for Japan and recent rounds of suspected currency intervention have speculators rushing to close what had been profitable “carry” trades funded in yen. The Bank of Japan reviews policy next Tuesday and Wednesday.

In a carry trade investors borrow in a low-yielding currency to invest in higher-yielding assets denominated other currencies.

Dollar/yen went down nearly 1% on Tuesday and fell another 0.7% on Wednesday to its lowest since mid-May at 154.28 per dollar. The yen is the best performing G10 currency against the dollar in July so far.

Moves in other pairs have been larger, with the euro dropping 1.3% on the yen Tuesday and a further 0.86% to an 11-week low of 167.43 on Wednesday.

Mexico’s high-yielding peso dropped 2% on the yen on Tuesday and another 1.1% on Wednesday.

© Reuters. FILE PHOTO: Banknotes of Japanese yen are seen in this illustration picture taken September 22, 2022. REUTERS/Florence Lo/Illustration/File Photo

The churn in yen funded carry trades also had an effect on the other favoured funding currency, the Swiss franc, against which the dollar was down 0.43% at 0.8875 francs and the euro was down 0.57% at 0.9620.

Later in the week, markets are waiting on U.S. GDP and core PCE data to test expectations for two U.S. rate cuts over the rest of this year.

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Dollar edges higher, euro slips after weak PMI data

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Investing.com – The U.S. dollar edged higher Wednesday, while the euro fell after the release of disappointing eurozone activity data pointed to further ECB rate cuts ahead.  

At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 104.232, extending an overnight rebound.

Dollar looks to political uncertainty

The dollar has benefited from the volatility surrounding the U.S. political situation. 

Vice President Kamala Harris was seen garnering strong support from the Democratic Party after her endorsement as its presidential nominee by President Joe Biden. A Reuters/Ipsos poll also showed her slightly ahead of Republican nominee Donald Trump.

That said, Trump remains the favorite to win November’s presidential election.

“The dollar losses from the softer June CPI report have now been erased in most USD crosses, with JPY, CHF and GBP standing out as a few key winners,” said analysts at ING, in a note. 

“Looking at the bottom of the FX scorecard, we sense the Trump trade is still very much at play.”

That said, Friday sees the release of U.S. inflation figures for June, and the Fed’s preferred gauge of inflation could change foreign exchange sentiment quickly.

Euro lower after weak activity data

In Europe, fell 0.2% to 1.0835, following the release of eurozone business activity data for July.

Growth in eurozone business activity stalled in July, with the HCOB’s preliminary dropped to 50.1 this month from June’s 50.9, barely above the 50 mark that separates growth from contraction. 

The kept interest rates on hold at 3.75% last week, but further signs of slowing regional growth point to further rate cuts this year.

Markets are pricing in almost two ECB rate cuts for the rest of the year.

traded 0.1% lower at 1.2898, falling back from the 1.30 level that the pair saw last week for the first time in a year.

Data showed that British business activity picked up this month, bolstered by the fastest manufacturing growth in two years and the strongest inflow of new orders since April 2023.

July’s S&P Global Flash rose to 52.7 from June’s six-month low of 52.3.

Elsewhere, rose 0.1% to 1.3796, near a three-month low for the Canadian dollar ahead of a rate-setting meeting later in the session.

Markets are pricing in an 84% chance of a 25 basis point rate cut, which would be the BoC’s second cut in as many months.

Yen goes from strength to strength 

In Asia, fell 0.5% to 154.81, with the pair falling to its lowest level since early June. 

The yen’s gains came as an extension of a recovery from last week, where the currency strengthened sharply amid suspected currency market intervention by the government. 

Some positive purchasing managers index data also benefited the yen, as an unexpected contraction in manufacturing activity was largely offset by a rebound in services activity. 

Focus is now squarely on a meeting next week, with recent inflation and PMI readings sparking increased speculation the central bank will raise interest rates by 10 basis points.

edged higher to 7.2773, close to highs last seen in November, as sentiment towards China remained dour amid persistent concerns over slowing economic growth in the country. 

 

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