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Dollar steadies after sharp losses; Swiss franc slumps on rate cut

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Dollar steadies after sharp losses; Swiss franc slumps on rate cut

Investing.com – The U.S. dollar rose marginally in European trade Thursday, rebounding after the previous session’s sharp losses after the Federal Reserve maintained its projections for interest rate cuts this year, while the Swiss franc slumped after a surprise cut by the Swiss National Bank. 

At 04:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally higher at 103.065, after having fallen more than 0.5% on Wednesday.

Fed sticks with three rate cuts this year

The kept interest rates unchanged on Wednesday, as widely expected, but also stayed on track for three rate cuts this year, even though it projected slightly slower progress on inflation.

Sticky inflation readings had prompted fears that the Fed officials would rein in projections for rate cuts this year, but the central bank didn’t strike a more hawkish tone, which sent the greenback tumbling.

Traders were now pricing in an over 70% chance the Fed will cut rates by 25 bps in June, according to the CME Fedwatch tool.

The Fed is unlikely to delay rate cuts for an extended period and are planning the first reduction at the June meeting, according to Goldman Sachs analysts, in a note.

“We continue to expect cuts in June, September, and December, for a total of 3 cuts in 2024,” they added.

Swiss franc slumps after rate cut

In Europe, rose 0.9% to 0.8945 after the surprised the market, cutting its benchmark interest rate by 25 basis points to 1.5%, becoming the first major central bank to cut interest rates in this cycle.

The step comes after Swiss inflation dipped to 1.2% in February, the ninth month in succession that price rises have been within the SNB’s 0-2% target range, and is likely aimed at curtailing the recent appreciation of the Swiss franc.

SNB chief Thomas Jordan suggested, at Davos, that the franc’s recent appreciation was posing challenges for exporters, and this move is likely designed to weaken the currency.

fell 0.1% to 10.5484 after kept its benchmark interest rate unchanged at 4.50% on Thursday, as unanimously expected by analysts.

fell 0.1% to 1.2776 ahead of the Bank of England’s policy-setting meeting later in the session.

The is widely expected to keep interest rates unchanged, but U.K. inflation slowed in February – dropping to 3.4% in annual terms after a 4.0% increase in January, the weakest rate of inflation since September 2021 – suggesting the central bank could start cutting interest rates in the months ahead.

traded 0.1% higher to 1.0920, after notching a one-week high against the dollar earlier in the session.

The European Central Bank has tried to dampen speculation on a streak of interest rate cuts, with President saying on Wednesday that the ECB could not commit to a certain number of rate cuts even after it starts reducing borrowing costs.

Yen bounces from a four-month low

traded 0.2% lower to 150.99, falling from a four-month high with the prospect of U.S. interest rate cuts and a more hawkish Bank of Japan boding well for the yen, which was battered by rising U.S. interest rates over the past year.

Purchasing managers index data for March showed some resilience in the Japanese economy, with activity shrinking less than expected, while the sector grew further. 

rose 0.4% to 0.6613, with the gains fueled chiefly by a substantially stronger-than-expected reading on the labor market, which also showed unemployment falling to a six-month low. 

 

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Dollar flat ahead of key inflation release; Middle East tensions ease

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Investing.com – The U.S. dollar traded largely unchanged in calm trading Monday, amid a calming of tensions in the Middle East and ahead of the release of the Federal Reserve’s favorite gauge of inflation later in the week.

At 05:40 ET (09:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded flat at 106.005, retreating from the five-month peak of 106.51 seen last week. 

Dollar stable ahead of key inflation release

The dollar surged to new highs last week after Israel launched a missile attack on Iran, in an escalation of the conflict in the volatile Middle East.

However, tensions appear to have been cooled, with Tehran downplaying Israel’s retaliatory drone strike against Iran, in what appeared to be a move aimed at averting a regional war.

“Sentiment is generally supported across asset classes as the week starts,” said analysts at ING, in a note. “All interested parties appear to have chosen the path of downplaying the size and consequences of Friday’s Israeli strikes in Iran.”

That said, the dollar has also been supported by strong U.S. economic data and persistent inflation, coupled with a slew of hawkish comments from Fed officials, reducing the chances of the Federal Reserve cutting rates any time soon. 

These officials will be keeping quiet this week, ahead of next week’s , but activity is likely to be limited ahead of Friday’s look at the , the Federal Reserve’s favored inflation gauge, which economists expect to remain elevated in March.

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Other economic data for the week includes an initial estimate of first quarter , which is expected to have moderated slightly from the previous quarter. Data on and will also be released along with revised figures on consumer sentiment and inflation expectations.

Euro edges up, but ECB set to cut early

In Europe, rose 0.1% to 1.0656, trading near six-month lows with regional economic weakness set to result in the European Central Bank cutting interest rates before the Federal Reserve.

Elevated tensions in the Middle East are unlikely to drive up energy prices and should not affect the European Central Bank’s plans to start cutting interest rates in June, French central bank chief Francois Villeroy de Galhau said on Sunday.

“Barring surprises, there is no need to wait much longer”, Villeroy told business daily Les Echos in an interview. “At the moment, the conflict is not leading to a marked rise in oil prices. If this were ever the case, we would have to analyse monetary policy for whether this shock is temporary and limited, or whether it is transmitted – beyond commodities – to underlying inflation.”

climbed 0.1% lower to 1.2355, just above its lowest level since mid-November seen on Friday, after Bank of England Governor Andrew Bailey and Deputy Governor Dave Ramsden alluded last week to Britain’s inflation slowing as expected. 

“Sterling markets moved on Friday after the Bank of England’s deputy governor, Dave Ramsden, sounded less concerned about price pressures and suggested that there were indications of UK inflation converging to that of the eurozone,” ING said. “Crucially, he added that the Bank will be “responsive” as evidence on inflation accumulates.”

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Yen weak ahead of BOJ meeting

In Asia, traded 0.1% higher at 154.74, remaining well above the 154 level and near 34-year highs, keeping investors on guard over any potential government intervention. 

Focus this week is on a Bank of Japan rate decision on Friday – the central bank’s first meeting after a historic rate hike in March. Any cues on future rate hikes and policy changes will be closely watched.

edged 0.1% higher to 7.2437, after the People’s Bank of China kept its benchmark on hold, as expected. 

The LPR was kept at record lows, as the PBOC moved to keep monetary policy as loose as possible to buoy economic growth. However, low interest rates are also expected to keep the yuan under pressure. 

The USDCNY pair was close to a five-month high, above the psychologically important 7.2 level. 

 

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UBS raises USDCNY forecast amid geopolitical tensions

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On Monday, UBS revised its forecast for the exchange rate, citing increasing geopolitical tensions and expectations of fewer rate cuts by the Federal Reserve. The Swiss financial services firm now anticipates the USD/CNY rate to reach 7.35 by June, up from the previous target of 7.20. Similarly, the September target has been adjusted to 7.30 from 7.15, the December target to 7.25 from 7.15, and the March 2025 target to 7.20 from 7.15.

UBS suggests that the People’s Bank of China (PBoC) is showing a greater willingness to allow a weaker yuan, which could contribute to additional short-term pressure on the Chinese currency. The firm’s analysis points to the rising geopolitical tensions as a key factor influencing the yuan’s trajectory.

Despite the potential for a pivot by the Federal Reserve in September, which might typically ease the upward trend of the USD/CNY, UBS believes that the impact could be mitigated. The firm notes that market concerns about US-China trade tensions, especially in the lead-up to the US presidential election in November, could dampen the effects of any policy changes by the Fed.

UBS’s revised targets reflect a cautious outlook on the Chinese yuan, as the global financial market continues to weigh various geopolitical and economic factors. The firm’s adjustment of the USD/CNY targets highlights the complex interplay between central bank policies, international relations, and market sentiment.

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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Asia FX weak as rate fears keep dollar steady

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Investing.com– Most Asian currencies moved in a flat-to-low range on Monday, and were nursing steep losses from the past week as concerns over higher-for-longer interest rates kept traders largely biased towards the dollar.

Still, easing fears over a bigger conflict in the Middle East offered regional currencies some relief, as risk appetite improved. 

But most regional units still retained a bulk of their losses from over the past week, as traders steadily priced out expectations that the Federal Reserve will cut interest rates by as soon as June.

Dollar steady, more rate cues awaited this week 

The and both fell slightly in Asian trade on Monday, but remained close to over five-month highs hit earlier in April. 

Waning bets on a June rate cut boosted the dollar, especially after strong U.S. inflation readings and hawkish commentary from top Fed officials. 

Focus this week is on more cues on U.S. monetary policy, specifically from data- which is the Fed’s preferred inflation gauge. The reading is due on Friday and is expected to reiterate that U.S. inflation remained sticky in March.

More cues on the U.S. economy are also due this week, with data for April set to offer more insight into business activity.

Chinese yuan steady after PBOC holds loan prime rate 

The Chinese yuan’s pair moved little on Monday after the People’s Bank of China kept its benchmark on hold, as expected. 

The LPR was kept at record lows, as the PBOC moved to keep monetary policy as loose as possible to buoy economic growth. The central bank is also expected to further trim the rate this year, after a cut to the in February. 

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But low interest rates are also expected to keep the yuan under pressure. The USDCNY pair was close to a five-month high, above the psychologically important 7.2 level. 

Japanese yen flat, BOJ meeting awaited 

The Japanese yen’s pair moved little on Monday, but remained well above the 154 level amid little relief from the dollar.

This kept investors on guard over any potential government intervention, especially as the USDJPY pair tested 34-year highs at 155. 

Focus this week is on a on Friday- the central bank’s first meeting after a historic rate hike in March. Any cues on future rate hikes and policy changes will be closely watched.

Broader Asian currencies moved little as fears of higher-for-longer U.S. rates remained in play. 

The Australian dollar’s pair rose 0.3% after tumbling to a five-month low last week.

The South Korean won’s pair rose 0.5%, while the Singapore dollar’s pair was flat.

The Indian rupee’s pair rose 0.1%, but was trading below record highs hit last week.

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