Forex

Pound, franc slide as central banks pause hikes; dollar holds firm

Published

1 year ago

September 21, 2023

Pound, franc slide as central banks pause hikes; dollar holds firm

By Samuel Indyk

LONDON (Reuters) – The pound and Swiss franc tumbled on Thursday after the British and Swiss central banks kept rates unchanged, while the dollar hit a 6-1/2 month high after the U.S. Federal Reserve signalled policy would remain restrictive for longer.

The yen, meanwhile, was at its lowest since November before Friday’s Bank of Japan policy announcement, while central banks in Sweden and Norway both met expectations for 25 basis point rate rises.

The Bank of England halted a run of 14 consecutive rate hikes by voting with a narrow 5-4 margin to keep its Bank Rate at 5.25%, the first time since December 2021 it has not raised rates.

The pound sank to its lowest since March, falling as low as $1.2231 before finding support and settling around $1.2270. Sterling also fell against the euro with the single currency last buying 86.7 pence.

“The Bank has shown time and again that it is placing a higher weight on lagged policy effects, the level of rates, and a more even-handed approach with an aversion to over-tightening,” Goldman Sachs strategists, led by Michael Cahill, said.

“That may ultimately provide more protection for economic activity, but it comes at the expense of leaving sterling more vulnerable.”

Earlier, the Swiss franc dropped after the Swiss National Bank unexpectedly held rates steady, marking the first time the central bank has not hiked since March 2022, although it kept options open for further rate rises.

The euro rose as high as 0.9677 francs and is set for its biggest one-day rise since June. The dollar rose 0.8% to 0.9053 francs, hitting its highest level since June 13.

“The Swiss franc has understandably weakened after the surprise hold in the policy rate today,” ING strategists said in a note.

“However, the SNB has said that it will still be using the exchange rate to “provide appropriate monetary conditions” and to do this will likely continue to sell FX.”

Meanwhile, Sweden’s Riksbank and Norway’s central bank both raised rates by 25 basis points, in line with expectations.

The euro was up 0.3% against the Swedish crown and 0.1% against the Norwegian crown following the respective decisions.

DOLLAR HOLDS FIRM AFTER FED

The Fed held interest rates steady at the 5.25%-5.50% range, in line with market expectations on Wednesday, but it stiffened a hawkish monetary policy stance that its officials increasingly believe can succeed in lowering inflation without wrecking the economy or leading to large job losses.

Along with another possible rate hike this year, the Fed’s updated projections show significantly tighter rates through 2024 than previously expected.

“They were more hawkish further out on the curve with the dot plots signalling just 50 basis points of cuts in 2024,” said Niels Christensen, chief analyst at Nordea.

“The dollar should be well supported toward the end of the year or until we start seeing softer data.”

The , which measures the currency against a basket of rivals, rose as high as 105.68, its strongest since early March, before settling around 105.57.

The euro stood at $1.0643 after falling to a six-month low of $1.0617.

The Japanese yen was feeling the heat after the Fed meeting, hovering around 147.895 per dollar after touching a nearly ten-month low of 148.465 earlier on Thursday.

Even as the yen has slipped back toward levels seen at the end of last year, the possibility of the Bank of Japan tightening policy at Friday’s meeting remains slim.

“It seems unlikely the BOJ will announce any change of policy tomorrow, or soon for that matter. Although you never know for sure with this central bank,” said Matt Simpson, senior market analyst at City Index.

Both the Australian and New Zealand dollars took a hit following the Fed’s meeting, with the Australian currency last down 0.7% and the NZ dollar falling 0.3%, although the latter found some support after data out on Thursday showed the economy grew more than expected in the second quarter.

Forex

US dollar gains as US election draws nearer – UBS

Published

12 hours ago

October 17, 2024

Investing.com – The US dollar has gained more ground as the US presidential election draws near, UBS noted, with the market seeing rising odds of a win for Republican candidate Donald Trump.

A new USD-positive over the past week has been media reports of somewhat better outlook for Donald Trump in the latest polls, as outcomes that allow for policies such as more aggressive tariffs are viewed as more USD positive.

“Higher odds of a Trump presidency are likely to be associated with a stronger USD near term,” said analysts at UBS, in a note dated Oct. 16.

Where does this leave us now with our USD views?

Our expected ranges between Sep–Dec 2024 incorporated the possibility of a material USD rebound between now and year end, even if our year-end forecasts see a modestly lower USD from current levels.

Last week, with an eye to our year end forecast, we entered a long call reverse knockout, but we are not willing to implement a similar trade yet for and .

The spot is still far enough from our range extremes and high JPY implied volatility and negative carry make long JPY positions unattractive so close to US elections.

Turning to this week’s ECB meeting, the market is very confident that another 25bp rate cut will be delivered and we do not have a strong reason to disagree.

Market expectations are very muted for any form of surprise, and risk reversal skews bid again for EUR puts point to a market that is already primed for the risk of EUR softness.

With market pricing in line with our economists’ terminal rate expectations, we see EUR/USD as more exposed to US developments near-term, leaving us reluctant to fade recent softness on ECB reasons alone.

At 06:30 ET (10:30 GMT), EUR/USD rose 0.1% to 1.0894, USD/JPY gained 0.1% to 149.34 and AUD/USD fell 0.2% to 0.6685.

Forex

Sell euro rallies around the ECB meeting – Citi

Published

12 hours ago

October 17, 2024

Investing.com – The European Central Bank holds its latest policy-setting meeting later this week, and Citigroup advises selling any rallies in the euro around this key event.

Markets are pricing in around 49 basis points of easing over the remaining two ECB meetings this year, which could limit dovish repricing around Thursday’s event, according to analysts at Citi, in a note dated Oct. 15.

“We see scope for a tactical bounce in EUR around this Thursday’s ECB meeting, which we like fading into November as US election risk premium materializes,” Citi said.

That said, “we like fading any subsequent rallies in EUR as we approach November and US election risk premium gets better priced.”

There is some evidence of this unfolding, the bank added, as EUR looks undervalued on its short-term fair value model and as Citi’s FX Positioning data suggests adding to EUR shorts.

“But our broader FX election basket still screens as undervalued relative to Trump betting markets, and we remain short EURUSD in both spot and options,” says Citi. “We would look to sell any retest of the 1.10 double top neckline — any break above there risks a move towards our adjusted stop of 1.1050, but if that resistance holds, we have higher conviction of a move towards our (and the double top) target of 1.08, with potential overshoot towards 1.07.”

At 05:25 ET (09:25 GMT), traded largely flat at 1.0892, almost 2% lower over the last month.

Forex

Dollar gains on trimmed rate expectations; sterling weakens post inflation

Published

12 hours ago

October 17, 2024

Investing.com – The U.S. dollar edged higher Wednesday, trading near two-month peaks on expectations of modest rate cuts from the Federal Reserve this year, while sterling slumped after benign inflation data.

At 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 103.180, remaining close to Monday’s two-month peak.

Dollar helped by trimmed rate cut expectations

Recent data indicating a resilient economy coupled with slightly hotter-than-expected inflation in September have led market participants to trim bets for an aggressive U.S. rate reduction.

Adding to these expectations were comments from Atlanta Federal Reserve President on Tuesday, who said he had penciled in just one more interest rate reduction of 25 basis points this year when he updated his projections for last month’s U.S. central bank meeting.

Most market participants see two more cuts this year, totaling 50 bps, and traders currently lay 92% odds for a 25-basis-point cut when the Fed next decides policy on Nov. 7, with an 8% probability of no change, according to CME Group’s (NASDAQ:) FedWatch Tool.

Sterling slumps after inflation release

In Europe, slumped 0.5% to 1.3003, after data showed British inflation fell more than expected in September, paving the way for a rate cut next month.

The UK’s fell to 1.7% on an annual basis, below the forecast 1.9% and the 2.2% recorded a month earlier.

This was the first time it had fallen below the Bank of England’s 2% target since April 2021, and added to data seen earlier in the week that showed British pay grew at its slowest pace in more than two years.

“The data is unequivocally dovish for the Bank of England and paves the way for rate cuts at the two remaining meetings this year (November and December),” said analysts at ING, in a note.

“Given the comments by Governor Andrew Bailey earlier this month suggesting the BoE could increase the pace of easing, markets may be tempted to price in some chance of a 50bp rate cut in November.”

traded 0.1% lower to 1.0882, ahead of Thursday’s policy-setting meeting by the European Central Bank.

The has already lowered rates twice this year and a cut to the 3.5% deposit rate this week is almost fully priced in by financial markets.

“EUR/USD is predominantly driven by external factors. The substantial drop in oil prices has narrowed the scope for a further drop based on market factors, but we continue to suspect that pre-US election positioning should favor a weaker EUR/USD,” said ING.

Yuan nurses weekly losses

fell slightly to 7.1179, with the yuan nursing losses this week as sentiment soured over the country’s plans for more stimulus.

China’s Ministry of Finance said it will enact a slew of fiscal measures to boost growth, but did not specify the timing or size of the planned measures, spurring uncertainty over its effectiveness.

rose 0.2% to 149.43, with the pair climbing closer to the 150 resistance level.

data due later this week is expected to offer more cues on the Bank of Japan’s plans to hike rates further.