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Forex

Dollar weakens after inflation data, Yen surges on Ishiba win

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By Chuck Mikolajczak

NEW YORK (Reuters) -The dollar fell on Friday after a reading of U.S. inflation signaled price pressures continue to ebb, while the yen strengthened against the greenback after Shigeru Ishiba, seen as an interest rate hawk, was set to become Japan’s next prime minister.

The U.S. personal consumption expenditures (PCE) price index rose 0.1% in August, matching expectations of economists polled by Reuters, after an unrevised 0.2% gain in July. In the 12 months through August, the PCE price index increased 2.2% after rising 2.5% in July.

In addition, consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2% last month after an unrevised 0.5% gain in July. The data was slightly below the 0.3% estimate but indicated the economy still maintained some momentum in the third quarter.

The Federal Reserve has recently signaled a shift in focus away from inflation and towards keeping the labor market healthy, but delivered a larger-than-usual interest rate cut of 50 basis points (bps) last week.

“(Fed Chair) Powell can breathe a little sigh of relief,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

“After pushing for a 50 bps cut instead of a more conventional 25 bps cut the personal income and spending data so far vindicates that decision.”

The , which measures the greenback against a basket of currencies, including the yen and the euro, was down 0.17% at 100.43 after falling to 100.15, its lowest since July 20, 2023, with the euro off 0.14% at $1.116.

The dollar is down about 0.2% for the week, on pace for its fourth straight weekly decline and ninth in the last 10. The euro was slightly lower for the week.

Markets are fully pricing in a cut of at least 25 basis points at the Fed’s November meeting, with expectations for another upsized 50 basis point cut now up to 56.7% after the data, according to CME’s FedWatch Tool, from 49.9% before the release.

The yen strengthened after Japan’s Ishiba won the leadership contest of the country’s ruling Liberal Democratic Party in a narrow victory.

Ishiba, a former defense minister, is a critic of past monetary stimulus and told Reuters the central bank was “on the right policy track” with rate hikes thus far.

Markets had been largely expecting a win for hardline nationalist Sanae Takaichi, a vocal opponent of further interest rate hikes, pricing in loose monetary and fiscal policies and a weaker yen over the past week.  

The Japanese yen was 1.88% stronger at 142.12 per dollar after strengthening as far as 142.09, on track for its biggest daily percentage gain since Aug. 2. For the week, the dollar is down 1.25% against the yen., poised for its third weekly decline in four.

The euro fell 1.95% to 158.67 against the Japanese currency.

European data showed inflation in France and Spain rose less than expected, boosting expectations for an October rate cut from the European Central Bank to more than 90%.

China, meanwhile, launched another round of stimulus measures on Friday, as the country’s central bank lowered interest rates and injected liquidity into the banking system as it attempts to bring economic growth back towards this year’s target of about 5%.

© Reuters. FILE PHOTO: A Japanese 10,000 yen banknote is seen at a currency museum of the Bank of Japan in Tokyo, Japan July 3, 2024. REUTERS/Issei Kato/Pool/File photo

The dollar strengthened 0.11% to 6.979 versus the offshore .

Sterling declined 0.3% to $1.3375 and is up more than about 0.4% on the week, poised for a second straight weekly advance.

Forex

HSBC lowers EUR-AUD trade target, stop-loss

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HSBC Global Research has adjusted its position on the EUR-AUD currency pair, setting a lower target and stop-loss levels for its sell trade idea.

On the other hand, the firm revised its target down to 1.5690 from its initial position opened on September 20 at 1.6400. The stop-loss was also tightened to 1.6150.

The decision follows a series of negative data impulses from the Eurozone, which have persisted since the trade idea was initiated. Market expectations currently factor in a 25 basis point rate cut by the European Central Bank (ECB) in October.

However, further dovish signals in line with ECB President Lagarde’s comments on September 30 might trigger additional market adjustments. Speculations are brewing that cuts could reach 50 basis points if the current trend continues.

The Eurozone’s fiscal concerns are adding pressure to the euro, as evidenced by the sustained wide spread between the 10-year OAT (French government bonds) and German Bund yields. These factors contribute to the bearish outlook for the euro against the Australian dollar.

In contrast, the Reserve Bank of Australia (RBA) is expected to maintain its current policy stance while other central banks are easing theirs.

HSBC economists also anticipate additional policy stimulus from China, which is likely to benefit the Australian dollar. With the terms of trade shifting in favor of the AUD, HSBC’s analysis suggests that the currency will perform better than the euro.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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UBS wary of chasing dollar weakness ahead of payrolls

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Investing.com – The price of soared and equity markets suffered weakness in response to the Iranian missile attacks on Israel, but the US dollar gains were more muted, noted UBS, suggesting a market that is not especially over-positioned in short dollar trades.

At 05:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 101.020, after gaining about 0.5% in the previous session. 

Tuesday’s soft September data seemingly took precedence over the upside surprise in August data, with 2yr US Treasury yields falling after their release. 

“This was in line with our longstanding view that the market will asymmetrically weight weak US data more strongly than resilient numbers by ascribing more forward looking powers to the former,” analysts at UBS said, in a note dated Oct. 2. “The weakness in the prices paid and employment components in particular are very supportive of Fed rate cuts.”

The soft data were timely for USD bears, given that Monday’s comments by Fed chair Jerome Powell suggesting that rate cuts would go back to 25bp increments from November had allowed a modest USD pullback after sharp losses seen since mid-August, UBS said.

“With Fed officials like Bostic making it clear that further 50bp rate cuts are possible if the jobs market shows signs of real weakness, even before the ISM data it was unlikely that Powell’s comments this week could have a durable impact,” UBS added.

As such, the focus now shifts very clearly onto the September employment data due on Friday. 

UBS economists are looking for headline to bounce back to 180k, above market expectations of 150k, but with the staying at 4.2% – outcomes that argue for a 25bp rate cut at the 7 Nov FOMC rather than another 50bp cut. 

“From our perspective, with spot close enough already to many of our year-end calls, it gets harder to chase general USD weakness at these levels without a firm view that Friday’s jobs numbers will be weak (eg payrolls under 100k without upward revisions to previous months or an unemployment rate of 4.4% or higher),” UBS added.

 

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Dollar holds gains as war widens in Middle East, rallies against yen

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By Harry Robertson and Tom Westbrook

LONDON/SYDNEY (Reuters) -The dollar held on to its biggest gains in a week on Wednesday after an Iranian missile attack on Israel drove the buying of safe haven assets as investors fretted about the widening of conflict in the Middle East.

It also jumped against the yen as Japanese officials, including new Prime Minister Shigeru Ishiba, talked down the chances of another Bank of Japan rate hike.

The euro was little changed against the dollar at $1.1069, following its largest drop in nearly four months on Tuesday at 0.6%.

The , which tracks the currency against a basket of peers, was also steady at 101.32 after rising 0.5% on Tuesday.

Iran said on Wednesday its missile attack on Israel, its biggest military assault on the Jewish state, was over, barring further provocation, while Israel and the United States said they would retaliate against Tehran.

Israel said Iran fired more than 180 ballistic missiles and Iran’s Revolutionary Guard Corps said the attack was retaliation for Israeli killings of militant leaders and aggression in Lebanon against the Iran-backed armed movement Hezbollah.

The markets’ response to the Middle East tensions thus far has centred on oil prices.

“The oil price does appear to be where the market is taking its steer from (but) even now () is still at $75 a barrel, and that’s far lower than what it was before the summer,” Jane Foley, head of FX strategy at Rabobank, said.

“It is still obviously a primary source of concern. And the market will certainly be keeping one eye on that and one eye on the Fed and the U.S. economy as well.”

In Japan, the dollar was last up 0.77% against the yen at 144.71 yen per dollar.

Bank of Japan Governor Kazuo Ueda avoided repeating the central bank’s pledge to keep raising rates in a speech and focused on the risks facing the economy.

After a meeting with Ueda, new PM Ishiba said Japan is not in an environment for an additional interest rate hike, causing the yen to fall further.

Elsewhere, the safe haven Swiss franc fell around 0.2% to 0.8435 per dollar, after it reversed its morning losses to rise slightly on Tuesday.

Sterling was little changed at $1.3281 after dropping 0.67% the previous day.

The euro’s fall on Tuesday was also driven by increased bets that the European Central Bank will cut interest rates in October, after data showed euro zone inflation fell more than expected to 1.8% in September.

The dollar’s rise was helped by a stronger-than-expected reading on U.S. job openings.

The focus turns to U.S. private payrolls data due later on Wednesday, with traders also monitoring a dispute at U.S. ports. The most important data point of the week is the U.S. employment report for September on Friday.

© Reuters. FILE PHOTO: U.S. Dollar banknotes are seen in this illustration picture taken June 14, 2022. REUTERS/Florence Lo/Illustration/File Photo

East and Gulf Coast dockworkers began their first large-scale strike in nearly 50 years on Tuesday, halting the flow of about half the country’s ocean shipping.

Vice Presidential candidates J.D. Vance and Tim Walz squared off in a nationally televised debate on Tuesday, which was largely civil and was met with muted market response.

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