Forex
Dollar steadies ahead of U.S. growth, inflation data
Investing.com – The U.S. dollar steadied in early European trade Thursday near two-week highs, supported by rising yields and rising conviction the Federal Reserve will not cut interest rates anytime soon.
At 04:35 ET (08:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, slipped marginally lower to 104.940, having earlier reached the highest since May 14 at 105.17, following a 0.5% advance in the prior session.
Safe haven dollar in demand
A spate of stronger-than-expected economic data, hawkish comments from a number of Fed officials and a run of poorly received auctions have seen bond yields rise sharply, spurring a rush to the safest assets and boosting the dollar.
Conviction is growing that the Fed will not cut interest rates any time soon, and traders are waiting for confirmation from Friday’s data, the Fed’s preferred inflation gauge, that inflation remained sticky through April.
Ahead of that, a revised reading on first quarter is due later Thursday, and is expected to show continued resilience in the U.S. economy. Strength in the economy gives the Fed more headroom to keep rates high for longer.
“A series of softer US Treasury auctions and a sell-off in the longer end of the bond market is weighing on risk assets and providing some support to the dollar,” said analysts at ING, in a note.
“This may well just be a short-term swing ahead of Friday’s key US data release, but it is a trend worth watching.”
Euro bounces off two-week low
In Europe, traded 0.1% higher to 1.0810, bouncing off a two-week low ahead of the release of eurozone business confidence data later in the session and then the eurozone CPI release at the end of the week.
“Some modest improvement is expected across the board, but as we saw with Monday’s German IFO release, the pick-up in sentiment looks likely to be more modest than euphoric,” analysts at ING said.
The is widely expected to announce an interest rate cut next week, but uncertainty over what follows could be influenced by Friday’s inflation release.
fell 0.1% to 1.2697, after sterling fell to a two-month low during the previous session.
Yen gains ahead of Tokyo inflation report
In Asia, traded 0.4% lower to 157.03, but the pair remained close to recent highs, amid sustained weakness in the yen.
Focus was now squarely on an upcoming , due on Friday, for more cues on the Japanese economy. Any signs of increasing inflation could bring some relief to the yen.
traded 0.1% lower at 7.2461, amid mounting pressure from concerns over a sluggish Chinese economy.
data from China is due on Friday.
The People’s Bank of China (PBoC) responded to increasing demand for the US dollar by adjusting its cross-border macroprudential parameter.
The central bank’s decision to raise the parameter from 1.50 to 1.75 allows domestic corporations and financial institutions to engage in more cross-border borrowing.
The adjustment came as the foreign exchange settlement balance for banks’ clients showed a deficit of $10.5 billion, marking the first negative reading since July 2024. This deficit contrasts with the previous month’s figures. The rise in demand for the US dollar was particularly noticeable in service trade transactions.
Recent weeks have seen domestic importers actively purchasing US dollars through foreign exchange forwards. This move is a strategy to hedge against potential risks associated with tariffs, which has contributed to an upward push on forward points.
The PBoC’s policy change on January 13 reflects efforts to manage market expectations regarding foreign exchange rates.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
On Wednesday, Macquarie analysts provided insights into the potential future movements of the Canadian dollar (CAD) against the US dollar (USD).
They indicated that the fears of heavy-handed US import tariffs are unlikely to materialize immediately after the inauguration, suggesting that the USD’s rally against the EUR, CAD, and other currencies might not extend beyond the first quarter of the year.
The analysts highlighted that despite the initial threats of tariffs, Canada is expected to grow even closer to the United States in the coming years. This projection is based on several factors including Canada’s domestic politics, foreign policy, border and immigration policies, as well as trade and capital account flows, all of which demonstrate aligned interests with the US. The anticipated renegotiation of the United States-Mexico-Canada Agreement (USMCA) is expected to cement this relationship further.
According to Macquarie, this closer relationship between Canada and the US will lead to a much more stable exchange rate in the future. They predict that as a result of these developments, the USD/CAD pair will experience a downward drift, potentially reaching a mid-year target of 1.35.
The stability in the USD/CAD exchange rate is seen as a reflection of the ‘merger trend’ context, where the two economies continue to integrate and align, leading to less exchange rate fluctuation. Macquarie’s analysis projects a calmer period ahead for the currency pair, which has historically been influenced by trade policies and geopolitical factors.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Investing.com – The US dollar lifted slightly Thursday, but remained in a tight trading range ahead of a speech by President Donald Trump at the World Economic Forum.
At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher to 108.150, after starting the week with a drop of over 1%.
Dollar treads water
The dollar has largely treaded water over the last couple of days as traders await more clarity over President Donald Trump’s plans for tariffs, following the sharp fall on Monday as his first day in office brought a barrage of executive orders, but none on tariffs.
He has subsequently talked about levies of around 25% on Canada and Mexico and 10% on China from Feb. 1, as well as mentioning duties on European imports, but without concrete action.
Trump speaks later in the session at the World Economic Forum in Davos, Switzerland, and traders are eagerly awaiting any comments on this topic as well as for his position on major geopolitical and economic issues such as the Ukraine-Russia war and the economic rivalry with China.
“This week’s dollar correction has not gone too far. Despite the heavy one-way positioning of the dollar, investors lack clarity on the timing of Trump’s tariff threats, preventing them from reducing dollar holdings,” said analysts at ING, in a note.
Also causing traders to pause for breath is the spate of central bank policy decisions due over the next week, including the on Friday, ahead of the and the next week.
Euro lower ahead of ECB meeting
In Europe, slipped 0.1% lower to 1.0404, with the single currency weak ahead of next week’s ECB meeting, with an interest rate cut largely seen as a done deal.
“This week’s EUR/USD bounce has been pretty muted so far,” said ING. “There is no way investors can expect to hear an ‘all-clear’ signal on tariffs. And keeping trading partners off balance/guessing is a tactic that kept the dollar reasonably well bid during Trump’s last tariff regime in 2018-19.”
traded 0.1% lower to 1.2304, while rose 0.2% to 11.3035 ahead of a policy-setting meeting by the later in the session.
“Norges Bank is widely expected to keep rates on hold today,” ING said. “On the whole, the key variables monitored by NB have not clearly argued a rate cut should be pushed beyond March. Also, the risks to global growth related to Trump’s protectionism plans should encourage policymakers to allow some breathing room with a rate cut before the end of the first quarter.”
BOJ meeting to conclude Friday
In Asia, traded largely unchanged at 156.47, ahead of the Bank of Japan’s two-day policy meeting, which concludes on Friday.
The BoJ is widely expected to raise interest rates as recent inflation and wage data have been encouraging, and the central bank is likely to signal further interest rate hikes if the economy maintains its recovery
traded 0.2% higher to 7.2877, with the Chinese currency weaker on fears Trump will confirm US tariffs on Chinese imports, hitting the second largest economy in the world.
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