Forex
Dollar slips lower ahead of CPI; euro awaits ECB meeting
Investing.com – The US dollar drifted marginally lower Monday, with last week’s jobs report pointing to another Fed cut later this month, but losses were minor amid renewed uncertainty in the Middle East.
At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 105.550.
Dollar rally looks tired
The dollar rally that followed Donald Trump’s victory in the US presidential election is starting to look a little tired as the year draws to an end, with the Federal Reserve widely expected to cut interest rates once more next week even after a rebound in jobs growth in November.
“Much of the US dollar-positive story is in the price – from strong US data to trade and fiscal risks – and positioning is fairly long dollars,” analysts at Morgan Stanley (NYSE:) said, in a note.
However, the has only dropped by less than 0.5% over the course of the last week, as it retains support as a safe haven, especially given the heightened geopolitical tensions.
Rebel forces in Syria have ousted President Bashar al-Assad, taking control of the capital Damascus, as the Middle East remains in turmoil, while the war between Ukraine and Russia continues to rage.
Add to this the political instability in South Korea, with the country widely seen as a pillar of the East Asian economy, and it’s no surprise the US currency retains supporters.
“There seems little reason to reduce long dollar positions right now and after two weeks of consolidation, we see it as more likely that the dollar will resume its bull trend,” said analysts at ING, in a note.
US data for November is due on Wednesday, and could provide more insights on the Federal Reserve’s interest rate trajectory.
Euro awaits latest ECB meeting
In Europe, edged higher to 1.0579, with traders awaiting the latest rate decision from the European Central Bank on Thursday, its final policy meeting of the year.
The ECB is widely to agree to another 25-bps rate cut, its fourth such cut this year.
Eurozone inflation ticked higher in November, but still appears to be heading towards the ECB’s 2% target, with some signs that wage pressures are easing.
Since the ECB’s last meeting in October tariff risks for Europe have risen after Trump’s election win; France and Germany are grappling with political turmoil; business activity has slowed sharply, and the euro has weakened.
“There certainly seem few reasons for the ECB to be cheerful right now, even though the hard data is holding up better than expected,” ING said.
traded 0.3% higher to 1.2776, with sterling holding up reasonably well as the attempts to cope with inflation proving to be stubbornly high.
in the UK went up by 2.3% in the 12 months to October, which means inflation is back above the Bank of England’s target.
The UK central bank cut rates in November for the second time in 2024, and is seen easing monetary policy more slowly than its main rivals in 2025.
BOJ to hike next week?
In Asia, gained 0.3% to 150.44, after revised data showed that the Japanese economy grew slightly more than expected in the third quarter. However, the reading was well below the prior quarter’s rise.
Investors remain divided on whether the will hike rates next week, after Monday’s economic growth reading.
rose 0.1% to 7.2748, after data showed that Chinese contracted more than anticipated in November, despite recent stimulus efforts. Producer price inflation in November also remained subdued.
The focus this week will be on China’s annual Central Economic Work Conference for cues on more stimulus measures from the country’s central bank.
climbed 0.9% to 0.6444 ahead of Tuesday’s Reserve Bank rate decision. The is expected to keep rates unchanged but may temper its hawkish stance amid signs of weakening economic conditions in Australia.
rose 0.5% to 1,431.49, hovering near a two-year high mark as South Korea’s political crisis intensified after prosecutors launched a criminal investigation into President Yoon Suk Yeol on Sunday, over his failed attempt to impose martial law in the country last week.
Yoon survived an impeachment vote in the opposition-controlled parliament on Saturday, but the head of his own party said that Yoon would be sidelined before eventually resigning.
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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