Forex
Dollar steadies ahead of payrolls; German retail sales rise
Investing.com – The U.S. dollar traded in tight ranges Thursday, as traders digested some mixed economic data ahead of the widely-watched payrolls report which closes out the week.
At 05:35 ET (09:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, edged just higher to 103.917, after reaching the highest since the end of July on Tuesday.
Dollar steadies
The dollar is struggling to make more headway, after recent gains, as recent economic readings have been proved difficult to read in terms of illustrating the strength of the US economy.
US surged in October, data showed on Wednesday, but this followed coming in lower than anticipated in September, slipping to their lowest level since January 2021.
Additionally, data showed the grew at an annualised rate of 2.8% in the third quarter, slightly lower than the 3% expected by economists.
The economic data slate Thursday includes weekly as well as the deflator, the Fed’s preferred price gauge, but most eyes will be on the release on Friday.
Also of interest has been the run-up to the presidential election on Tuesday, with the dollar benefiting from trades betting Republican candidate Donald Trump will win, although the race with Vice President Kamala Harris appears very close.
DXY is currently near support at 104.00, said ING, “ and after one-way bullish traffic for over a month, may be due a modest correction to the 103.65 area.”
German retail sales rise
In Europe, traded largely unchanged at 1.0857, after unexpectedly rose in September, gaining by 1.2% compared with the previous month.
This followed data showing the expanded by 0.2% in the third quarter from the previous three months, ahead of expectations.
However, the European Central Bank is still expected to continue cutting interest rates, especially if , due later in the session, remains below the central bank’s 2.0% target.
The has cut interest rates three times this year, with the latest cut at its last meeting in October, the first back-to-back cut since the euro crisis in 2011.
“EUR/USD could retest yesterday’s 1.0870 high on today’s European data – but a move up to 1.09030 might be a bridge too far given the pivotal US elections next Tuesday,” added ING.
rose 0.1% to 1.2976, in the wake of Wednesday’s UK budget, the first for the new Labour Government.
“Labour’s large tax-and-spend budget – described by some as an ‘old Labour’ policy – is still reverberating across UK asset markets,” ING noted. “Sterling briefly got a lift yesterday on the view that the budget was stimulative and that the Bank of England easing cycle would need to be repriced higher.”
“However … we suspect the BoE is unlikely to be swayed by the government’s budget plans.”
BOJ maintains interest rates at low levels
fell 0.6% to 152.47, with the yen gaining even after the maintained ultra-low interest rates earlier Thursday.
BOJ Governor Kazuo Ueda emphasised the need to scrutinise global economic developments in deciding when to next tighten policy, highlighting its focus on risks to a fragile domestic recovery.
“As for the timing of the next rate hike, we have not preset idea. We will scrutinise data available at the time at each policy meeting, and update our view on the economy and outlook, in deciding policy,” he said.
rose 0.1% to 7.1192, after the release of China’s , which showed activity in October expanded for the first time in six months.
The official PMI rose to 50.1 in October from 49.8 in September, just above the 50-mark separating growth from contraction.
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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