Forex

Dollar tumbles on dovish Fed, euro gains as ECB talks down rate cuts

Published

1 year ago

December 16, 2023

Dollar tumbles on dovish Fed, euro gains as ECB talks down rate cuts

By Karen Brettell and Samuel Indyk

NEW YORK/LONDON (Reuters) -The dollar fell to a two-week low against the euro and a more than four-month low against the Japanese yen in a broad based selloff on Thursday, after the Federal Reserve on Wednesday indicated that rate cuts are likely next year.

The euro and pound, meanwhile, were supported by the European Central Bank and the Bank of England affirming the need to hold rates higher for longer.

Fed Chair Jerome Powell said at Wednesday’s Federal Open Market Committee (FOMC) meeting that the tightening of monetary policy is likely over, with a discussion of cuts in borrowing costs coming “into view”. The Fed’s projections implied 75 basis points of cuts next year, from the current level.

“The Fed was very dovish yesterday,” said Athanasios Vamvakidis, global head G10 FX strategy at BofA Global Research. “The strong consensus… was for a balanced tone by Powell. Instead, Powell doubled-down, with a very dovish tone.”

The was last at 101.95, down 0.89% on the day. It earlier reached 101.76, the lowest since Aug. 10.

Fed funds futures traders are now almost completely pricing in a 25 basis points cut in March, and 150 basis points in rate reductions by Dec. 2024.

“The market has been coming around to the idea that inflation won’t be sticky or problematic over the past six weeks and now central banks are confirming it,” said Adam Button, chief currency analyst at ForexLive in Toronto.

“The market is running with the idea that rates will return to low levels in time – the bigger picture idea is that we’re headed back to a 2010s era of low growth and low inflation, rather than a 1970s era of volatile inflation,” he said.

The greenback briefly pared losses after data showed that U.S. retail sales unexpectedly rose in November.

The euro gained 1.08% to $1.0991, the highest since Nov. 29. It is on track for its biggest daily percentage gain since Nov. 14.

The ECB kept rates steady and pushed back against bets on imminent cuts to interest rates on Thursday by reaffirming that borrowing costs would remain at record highs despite lower inflation expectations.

“The ECB was unable to “out-dove” yesterday’s pivot by the Fed. The ECB continues to signal that rate hikes are done but their updated economic projections show no reason to hurry towards less restrictive policy,” said Samuel Zief, head of global FX strategy at JPMorgan Private Bank in London.

The pound rose 1.11% and earlier reached the highest since Aug. 22 after the Bank of England left interest rates unchanged and said that interest rates needed to stay high for “an extended period”. It is also on pace for the best day since Nov. 14.

“The main message remains that rates will remain high for as long as it takes, which effectively is a push-back to market pricing early cuts,” said BofA’s Vamvakidis.

The greenback fell 0.63% against the Swiss franc and hit the lowest level since July 27 after the Swiss National Bank held rates steady at 1.75%, as expected and acknowledged that inflationary pressure has decreased slightly over the past quarter.

It also tumbled 2.28% against the Norwegian crown to the lowest since August 15 after the Norges Bank unexpectedly raised rates by 25 basis points to 4.5%, adding that they would likely stay at that level for some time. It is looking at the largest drop since Jan. 6.

The yen reached the highest since July 31, with the dollar last down 0.68% against the Japanese currency at 141.94.

Expectations that the Bank of Japan (BOJ) could end negative interest rates at its monetary policy meeting on Dec. 18-19 have largely been dampened, but the BOJ could make tweaks to its statement, such as language that the bank will not hesitate to ease further if necessary, said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

That kind of change could be regarded as “one step toward normalisation … so that could be positive for the Japanese yen,” he said.

The Australian dollar, meanwhile, hit a more than four-month high at $0.6728 after domestic net employment jumped by 61,500 in November, compared to an increase of around 11,000 that markets had been forecasting. It was last up 0.54% at $0.6696.

The reached $0.6249, the highest since July 27, despite data showing the New Zealand economy unexpectedly contracted in the third quarter. It was last up 0.52% at $0.6206.

edged up 0.25% to $42,994.

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Currency bid prices at 3:00PM (2000 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 101.9500 102.8800 -0.89% -1.488% +102.9100 +101.7600

Euro/Dollar $1.0991 $1.0875 +1.08% +2.58% +$1.1009 +$1.0874

Dollar/Yen 141.9400 142.8950 -0.68% +8.25% +142.8900 +140.9500

Euro/Yen 156.00 155.38 +0.40% +11.19% +156.0500 +153.8800

Dollar/Swiss 0.8661 0.8717 -0.63% -6.33% +0.8731 +0.8632

Sterling/Dollar $1.2756 $1.2618 +1.11% +5.49% +$1.2793 +$1.2614

Dollar/Canadian 1.3410 1.3519 -0.81% -1.03% +1.3514 +1.3395

Aussie/Dollar $0.6696 $0.6661 +0.54% -1.76% +$0.6728 +$0.6657

Euro/Swiss 0.9520 0.9477 +0.45% -3.79% +0.9544 +0.9455

Euro/Sterling 0.8615 0.8617 -0.02% -2.59% +0.8634 +0.8587

NZ $0.6206 $0.6174 +0.52% -2.26% +$0.6249 +$0.6172

Dollar/Dollar

Dollar/Norway 10.5220 10.7800 -2.28% +7.34% +10.7760 +10.4500

Euro/Norway 11.5677 11.7239 -1.33% +10.23% +11.7411 +11.4925

Dollar/Sweden 10.2359 10.3166 +0.28% -1.65% +10.3353 +10.1950

Euro/Sweden 11.2509 11.2193 +0.28% +0.91% +11.2573 +11.1710

Forex

Dollar retains strength; euro near two-year low

Published

12 hours ago

December 25, 2024

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.

Forex

Asia FX muted, dollar recovers as markets look to slower rate cuts

Published

12 hours ago

December 25, 2024

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.

Forex

Dollar breaks free, poised for more gains amid US economic outperformance

Published

12 hours ago

December 25, 2024

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.