Forex
Dollar steady near two-month high as markets weigh policy outlook
By Samuel Indyk and Ankur Banerjee
LONDON (Reuters) -The U.S. dollar was perched near it highest in more than two months against major currencies on Tuesday, spurred by wagers the Federal Reserve will proceed with modest rate cuts in the near term.
A string of U.S. data has shown the economy to be resilient, while inflation in September rose slightly more than expected, leading traders to trim bets on further large rate cuts from the Fed.
The U.S. central bank kicked off its easing cycle with an aggressive 50 basis point move at its last policy meeting in September but market expectations have shifted to a slower pace of cuts, boosting the dollar.
Traders are now ascribing an almost 90% chance of a 25 bps cut in November, with 45 bps of easing overall priced in for the year.
The , which measures the U.S. currency against six rivals, was at 103.16, just shy of 103.36, the highest level since Aug. 8 it touched on Monday, having risen after Fed Governor Chris Waller called for “more caution” on interest rate cuts ahead.
Fed repricing “has been the main engine for the dollar rebound, especially in relative terms to other central banks,” said Francesco Pesole, FX strategist at ING.
“Waller’s comments have contributed to the stronger dollar this week,” Pesole added.
The euro remained on the back foot, hitting its lowest level since Aug. 8 at $1.0885 ahead of the European Central Bank policy meeting on Thursday, where the central bank looks set to deliver a back-to-back interest rate cut, a move that seemed unlikely at its last meeting in September.
The pound bought $1.3079 after British labour market data showed pay grew at its slowest in more than two years in the three months to August, a pace that should allow the Bank of England to lower interest rates next month.
Expectations that sticky inflation would keep the BoE on a gradual rate cut path relative to its peers – the Fed and the ECB – had underpinned the pound’s outperformance this year but shifting bets have pushed it lower in recent weeks, with the pound down over 2% against the dollar for the month.
“Slowing wages should be the key takeaway from today’s labour market data,” said Jefferies economist Modupe Adegbembo, who expects a quarter-point cut next month.
YEN WEAKNESS ABATES
The U.S. currency’s rise has pushed the yen back towards 150 per dollar, especially after a dovish shift in rhetoric from Bank of Japan Governor Kazuo Ueda and surprising opposition to further rate hikes by new Prime Minister Shigeru Ishiba.
That has cast doubts over when Japan’s central bank will next tighten policy, with a very slim majority of economists in a Reuters poll expecting BOJ to forgo raising rates again this year.
The yen, however, was slightly stronger in early European trade at 149.29 per dollar, having slid as low as 149.98 on Monday, its weakest level since Aug. 1. The yen is down 3.7% this month.
Oil-exporting currencies were weaker after prices plummeted on media reports that Israel was not willing to strike Iranian oil targets, easing fears of a supply disruption in the Middle East.
The Norwegian krone was down about 0.2% against both the euro and dollar, while the Canadian dollar dipped 0.1%.
Meanwhile, the Australian dollar fell 0.2% to $0.6710, while the New Zealand dollar eased 0.2% to $0.6088.
, both onshore and offshore, weakened to a one-month low against the dollar on Tuesday. [CNY/]
Forex
Dollar bounces after sharp loss; euro retreats on Lagarde comment
Investing.com – The US dollar edged higher Monday, rebounding after the sharp losses at the end of last week on signs of cooling inflationary pressures, while the euro slipped following dovish comments from ECB head Christine Lagarde.
At 05:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher to 107.750, after falling sharply from a two-year high on Friday.
Dollar bounces after sharp retreat
The dollar bounced Monday after falling sharply on Friday as the Federal Reserve’s preferred showed moderate monthly rises in prices, with a measure of underlying inflation posting its smallest gain in six months.
That eased some concerns about how much the may cut in 2025, which had risen following the hawkish US rate outlook after the last Fed policy meeting of the year.
That said, traders are pricing in 38 basis points of rate cuts next year, shy of the two 25 bp rate cuts the Fed projected last week, with the market pushing the first easing of 2025 out to June, with a cut in March priced at around 53%.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Eurozone “very close” to ECB inflation goal
In Europe, fell 0.1% to 1.0414, near a two-year low it touched in November, down 5.5% this year, after European Central Bank President said the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“We’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%,” Lagarde said in an interview published by the Financial Times on Monday.
Earlier in December, Lagarde had said the central bank would cut interest rates further if inflation continued to ease towards its 2% target, as curbing growth was no longer necessary.
The lowered its key rate last week for the fourth time this year, and is likely to cut interest rates further in 2025 if inflation worries fade.
traded largely flat at 1.2571, after data showed that Britain’s economy failed to grow in the third quarter, adding to the signs of an economic slowdown.
The Office for National Statistics lowered its estimate for the change in output to 0.0% in the July-to-September period from a previous estimate of 0.1% growth.
The ONS also cut its estimate for growth in the second quarter to 0.4% from a previous 0.5%.
policymakers voted 6-3 to keep interest rates on hold last week, a bigger split than expected, amid worries over a slowing economy.
Yuan hits one-year high
In Asia, rose 0.2% to 156.72, after rising as far as 158 last week following dovish signals from the .
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
edged 0.2% higher to 7.3080, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
Forex
Asia FX muted, dollar slips from 2-yr high on soft inflation data
Investing.com– Most Asian currencies moved little on Monday, while the dollar steadied from a tumble from over two-year highs after soft U.S. inflation data spurred some hopes that interest rates will still fall in 2025.
Asian currencies were nursing steep losses against the dollar from last week, although they trimmed some declines on Friday after the soft inflation data. The outlook for regional markets also remains clouded by uncertainty over U.S. interest rates and policy under incoming President Donald Trump.
Dollar slips from 2-yr high as PCE data misses expectations
The and both steadied on Monday after clocking sharp losses on Friday.
The greenback slid from an over two-year peak after data- the Federal Reserve’s preferred inflation gauge- read softer-than-expected on Friday.
Still, the reading remained above the Fed’s 2% annual target, keeping uncertainty over interest rates in play.
The Fed had cut interest rates by 25 basis points last week, but flagged a slower pace of interest rate cuts in the coming year, citing concerns over sticky inflation and resilience in the labor market.
The Fed is expected to cut rates twice in 2025, although the path of rates still remains uncertain.
Markets took some relief from the government avoiding a shutdown after lawmakers approved an eleventh-hour spending bill.
Asia FX pressured by rate uncertainty
Despite clocking some gains on Friday, most Asian currencies were still trading lower for December, as the outlook for interest rates remained uncertain.
The Japanese yen’s pair rose 0.1% to around 156.59 yen, after rising as far as 158 yen last week following dovish signals from the Bank of Japan.
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
The Chinese yuan’s pair rose 0.1%, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
The Singapore dollar’s pair was flat ahead of inflation data due later in the day, while the South Korea’s won’s pair rose 0.3%.
The Australian dollar’s pair rose slightly after sinking to a two-year low last week.
The Indian rupee’s pair steadied after hitting a record high of over 85 rupees last week.
Forex
Dollar to weaken less than expected next year: UBS
Investing.com — The dollar recently notched fresh year-to-date highs against its rivals and is likely to remain strong after the Federal Reserve leaned more hawkish at its recent December meeting, analysts from UBS said in a recent note.
“While we still expect the dollar to fall, we now see less weakness in 2025 given these factors and adjust our forecasts slightly,” analysts from UBS said in a recent note.
The less bearish view on the USD comes in the wake of the greenback making fresh year-to-date highs in key exchange rates and the expectations for fewer U.S. rate cuts.
“The USD has been driven lately by prospects of fewer Fed rate cuts and tariff risks,” the analysts said.
The euro has been particularly affected by dollar strength, but is expected to trade around $1.05 against the greenback in the first half of 2025, the analysts forecast.
But a significant drop toward parity for the can’t be ruled out, “due to real tariff threats or further divergence in the macro backdrop between the US and Europe,” the analysts added.
Still, any move toward parity should be short-lived, the analysts said, amid expectations for the economic backdrop in Europe to improve in the second half of the year, narrowing the divergence between Europe and U.S. yields.
“The trajectory back into the middle of the trading range or higher, 1.08 to 1.10, comes with the view that two-year yield differentials will still narrow to some degree and better macro data out of Europe provide some underlying support for EURUSD in 2H25,” the analysts said.
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