Forex

Dollar tumbles after inflation data upends rate outlook

Published

1 year ago

July 13, 2023

Dollar tumbles after inflation data upends rate outlook

By Amanda Cooper

LONDON (Reuters) -The dollar tumbled to its lowest since last April on Thursday, heading for its biggest weekly slide so far this year, as traders took a surprisingly cool read of U.S. inflation as a sign U.S. rates could peak as early as this month.

U.S. data on Wednesday showed inflation slowed a lot faster than expected last month. That gave rise to the biggest one-day dollar sell-off in five months and left the greenback at its lowest in over a year against the euro and sterling, and at its lowest in over eight years against the Swiss franc.

U.S. core inflation came in at 0.2% in June against market expectations for 0.3%, while headline annual CPI fell to 3%.

Interest rate futures showed markets have fully priced in another rate hike from the Federal Open Market Committee (FOMC) later this month, but expectations of any further increases have evaporated.

Whether or not the dollar is on a one-way trip lower over the rest of the year remains to be seen, according to City Index markets strategist Fiona Cincotta.

“A lot depends on what we hear from the FOMC in a couple of weeks – that will very much decide the fate of the U.S. dollar and set the tone for the rest of the summer,” she said.

“If there is any hint of dovishness in the Fed, then the dollar bears are going to jump on that and it will be an excuse to continue grinding the dollar lower,” she said, adding she was not convinced the Fed would signal that July’s would be the final rate hike.

As traders priced in an end to U.S. rate rises, the narrowing gap between U.S. borrowing rates and those elsewhere drove other currencies, particularly the euro, sterling and the yen higher against the dollar.

The euro headed for a sixth daily gain – its longest stretch of rises against the dollar this year. It was last up 0.4% at $1.1173, having hit an earlier high of $1.1175.

IT’S EURO TIME

George Saravelos, Deutsche Bank (ETR:) global head of FX research, said in a note on Wednesday that, following the inflation data, the time had come to buy the euro.

“(Wednesday’s) U.S. inflation print is the last piece of evidence we have been waiting for to recommend going long again. We target $1.15 which is our year-end forecast, but as we have argued previously we see a $1.15-1.20 range by the end of the year as entirely possible,” he said.

The euro hasn’t touched $1.20 since mid-2021.

Sterling rose 0.6% to $1.3073, set for its sixth day of gains, having broken above $1.30 for the first time since April last year the previous day.

Data on Thursday showed Britain’s economy shrank by less than expected in May, reinforcing the idea the Bank of England can afford to raise interest rates further without derailing growth.

“Today’s figures were better than expected, but I don’t think they’re enough to get the champagne out yet,” City Index’s Cincotta said.

The yen, which has gained 4% in the last five days, held steady against the dollar at 138.565, thanks in part to another drop in U.S. Treasury yields, which the dollar/yen currency pair tends to track closely.

The Swiss franc traded at its strongest level against the dollar since the Swiss National Bank removed the peg on the domestic currency in early 2015, leaving the dollar down 0.4% on the day at 0.8634 per franc.

In Scandinavia, where inflation is looking sticky and central bankers are projecting further rate hikes, the Norwegian crown headed for its largest weekly gain versus the dollar this year, up nearly 5% at five-month highs, while the Swedish crown was set for a weekly gain of 4% and traded around two-month highs.

“We think the recent dollar underperformance reflects a qualitative shift in market comfort with being short dollars as the terminal Fed policy rate looks increasingly capped,” said currency analyst Steve Englander at Standard Chartered (OTC:).

Forex

Dollar now priced for perfection – BoA Securities

Published

15 hours ago

January 8, 2025

Investing.com – The US dollar has rallied strongly since the US Presidential election, from an already high level, and Bank of America Securities sees the currency now priced to perfection.

In real effective terms, BoA estimated that the dollar ended 2024 at a 55-year high, following the longest uptrend in recent decades, which started in mid-2011.

“The USD has also reached extreme levels in nominal terms. Using the BIS NEER broad index (nominal effective exchange rate), the USD is the strongest it has been in the last 30 years, which is when the time series started,” said analysts at BoA Securities, in a note dated Jan. 8.

The dollar appears overvalued by 18.5%, the most in the last 30 years except when it was overvalued by 19% during the energy shocks from the war in Ukraine in 2022, the bank said.

Its overvaluation increased by about 6.4% since the end of Q3 last year, to a large extent because of the US election. By comparison, it was overvalued only by 9.4% at the end of 2016, after Trump won his first US election.

Looking at G10 equilibrium estimates, the USD clearly stands out as the most overvalued – followed by CHF, with JPY and the Scandies being the most undervalued.

“We expect the USD to remain strong in the short term on the back of US inflationary policies, and particularly tariffs, but to weaken later in the year, as these policies take a toll on the US economy while the rest of the world responds. Policy uncertainty makes our baseline subject to substantial risks,” said BoA Securities.

Forex

Dollar boosted by rising Treasury yields; euro slips on weak data

Published

15 hours ago

January 8, 2025

Investing.com – The US dollar rose Wednesday, benefiting from rising bond yields after the release of healthy US economic data, while weak German industrial orders weighed on the euro.

At 04:35 ET (09:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 108.690.

Dollar gains as Treasury yields soar

The dollar has continued to push ahead Wednesday, following on from the prior session’s positive tone after data showed US unexpectedly rose in November, layoffs were low, while services sector activity accelerated in December and a measure of prices paid for inputs hit a two-year high.

This resulted in 10-year Treasury yields climbing to an eight-month high, while the benchmark 30-year yield came close to the 5% level.

“Yesterday’s US data releases were hawkish for the Fed, and the implied probability of a March rate cut has now dropped below 40%,” said analysts at ING, in a note.

“The most remarkable print was the ISM prices paid subcomponent, which spiked to the highest level since January 2023. If a generally resilient economy was already accounted for when the Fed met in December, a resurgence in inflation concerns could drive an even further hawkish tuning in the policy message.”

The Federal Reserve cut the number of rate cuts it sees this year to two at its December meeting, but traders are now only pricing in around 37 bps of easing through this year, according to LSEG data.

There is more data to digest Wednesday, in the form of the monthly and weekly , ahead of Friday’s release of the closely watched US for further clarity on the health of the world’s largest economy.

German economic weakness weighs on euro

In Europe, fell 0.2% to 1.0326, adding to the losses of around 0.5% overnight after the release of more disappointing economic data from the region’s largest economy – Germany.

fell 5.4% in November, sapped by a decline in large orders, while the country’s fell 0.6%, bursting hopes for a boost from pre-Christmas promotions like Black Friday and Cyber Monday.

Investors are currently looking for the to ease interest rates by around 100 basis points in the first half of 2025.

“There is only a speech by French central bank governor Villeroy to watch in the eurozone calendar today. EUR/USD may find decent support at 1.0300 for now,” said ING.

traded 0.2% lower to 1.2447, with little in the way of economic data due for release Wednesday, and only a speech from Bank of England Deputy Governor Sam Woods to digest.

The held interest rates unchanged last month, and is expected to proceed cautiously with further rate cuts this year with inflation still above target.

Yuan sentiment remains weak

In Asia, rose 0.1% to 7.3511, with the Chinese currency hitting its weakest level in 17 years earlier in the week.

Sentiment remains weak surrounding China ahead of President-elect Donald Trump’s inauguration on Jan. 20, with Trump having vowed to impose steep trade tariffs on China.

gained 0.1% to 158.19, after recovering marginally from its weakest level in nearly six months.

The yen stemmed its recent losses after government officials offered a verbal warning on potential currency market intervention, which saw traders adopt more caution in shorting the Japanese currency.

Forex

Dollar strengthens on elevated US bond yields, tariff talks

Published

15 hours ago

January 8, 2025

By Tom Westbrook and Greta Rosen Fondahn

SINGAPORE/GDANSK (Reuters) -The dollar rose for a second day on Wednesday on higher U.S. bond yields, sending other major currencies to multi-month lows, with a report that Donald Trump was mulling emergency measures to allow for a new tariff program also lending support.

The already-firm dollar climbed higher on Wednesday after CNN reported that President-elect Trump is considering declaring a national economic emergency as legal justification for a large swath of universal tariffs on allies and adversaries.

The was last up 0.5% at 109.24, not far from the two-year peak of 109.58 it hit last week.

Its gains were broad-based, with the euro down 0.43% at $1.0293 and Britain’s pound under particular pressure, down 1.09% at $1.2342.

Data on Tuesday showed U.S. job openings unexpectedly rose in November and layoffs were low, while a separate survey showed U.S. services sector activity accelerated in December and a measure of input prices hit a two-year high – a possible inflation warning.

Bond markets reacted by sending 10-year Treasury yields up more than eight basis points on Tuesday, with the yield climbing to 4.728% on Wednesday.

“We’re getting very strong U.S. numbers… which has rates going up,” said Bart Wakabayashi, Tokyo branch manager at State Street (NYSE:), pushing expectations of Fed rate cuts out to the northern summer or beyond.

“There’s even the discussion about, will they cut, or may they even hike? The narrative has changed quite significantly.”

Markets are now pricing in just 36 basis points of easing from the Fed this year, with a first cut in July.

U.S. private payrolls data due later in the session will be eyed for further clues on the likely path of U.S. rates.

Traders are jittery ahead of key U.S. labour data on Friday and the inauguration of Donald Trump on Jan. 20, with his second U.S. presidency expected to begin with a flurry of policy announcements and executive orders.

The move in the pound drew particular attention, as it came alongside a sharp sell-off in British stocks and government bonds. The 10-year gilt yield is at its highest since 2008. [GB/]

Higher yields in general are more likely to lead to a stronger currency, but not in this case.

“With a non-data driven rise in yields that is not driven by any positive news – and the trigger seems to be inflation concern in the U.S., and Treasuries are selling off – the correlation inverts,” said Francesco Pesole, currency analyst at ING.

“That doesn’t happen for every currency, but the pound remains more sensitive than most other currencies to a rise in yields, likely because there’s still this lack of confidence in the sustainability of budget measures.”

Markets did not welcome the budget from Britain’s new Labour government late last year.

Elsewhere, the yen sagged close to the 160 per dollar level that drew intervention last year, touching 158.55, its weakest on the dollar for nearly six months.

Japan’s consumer sentiment deteriorated in December, a government survey showed, casting doubt on the central bank’s view that solid household spending will underpin the economy and justify a rise in interest rates.

hit 7.3322 per dollar, the lowest level since September 2023.