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Forex

US dollar edges lower as traders await Fed rate cut decision

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By Chibuike Oguh

NEW YORK (Reuters) -The U.S. dollar edged lower against major currencies on Wednesday, giving up some of its overnight gains, as traders braced for the Federal Reserve’s much-anticipated decision to cut interest rates.

The U.S. central bank is expected to deliver its first interest rate cut in more than four years at 1800 GMT, with markets pricing a 61% probability of a 50 basis point cut and 39% chance of a 25 basis point cut.

Chair Jerome Powell will hold a press conference shortly after the announcement.

“What we’ve seen so far this week, just looking at the is that it fell on Monday, it rose by less on Tuesday, and now it’s falling by less so far today,” said Matthew Weller, global head of research at StoneX Retail in Grand Rapids, Michigan.

“That’s sort of the classic pre-key event risk type of pattern when traders aren’t feeling too strongly about committing in either direction.”

Against the Japanese yen, the dollar weakened 0.46% to 141.75 after reaching as high as 142.405 in Asia hours. The Bank of Japan will decide on interest rates on Friday.

The euro strengthened 0.20% against the greenback to $1.11380. The dollar was also down 0.4% against the Swiss franc to 0.844.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.18% to 100.73.

China’s markets resumed trade on Wednesday after the mid-autumn festival break, with the yuan down 0.4% at 7.0824 per dollar in offshore trading.

Sterling, the best performing G10 currency of the year, gained at $1.32540, with its rally being driven by signs of a steadying UK economy and sticky inflation.

British inflation stood at an annual rate of 2.2% in August, unchanged from July. The Bank of England is expected to leave rates unchanged on Thursday.

“We’ll likely see a bit of a divergence between the central banks, with the Bank of England now less likely to cut interest rates at all and the Fed very likely to cut,” Weller added.

Currency bid prices at 18 September​              

02:01 p.m. GMT

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

Dollar index 100.74 100.91 -0.16% -0.62% 100.91 100.69

Euro/Dollar 1.1134 1.1115 0.16% 0.86% $1.114 $1.1114

Dollar/Yen 141.76 142.42 -0.46% 0.51% 142.28 141.25

Euro/Yen 1.1134​ 158.24 -0.27% 1.41% 158.26 157.06

Dollar/Swiss 0.844 0.8472 -0.35% 0.31% 0.8467 0.8424

Sterling/Dollar 1.3236 1.3163 0.56% 4.02% $1.3254 $1.3157​

Dollar/Canadian 1.3587 1.3599 -0.07% 2.51% 1.3597 1.3577

Aussie/Dollar 0.6777 0.6756 0.33% -0.59% $0.6789 $0.675

Euro/Swiss 0.9397 0.9414 -0.18% 1.2% 0.9416 0.9382

Euro/Sterling 0.841 0.8444 -0.4% -2.98% 0.8453 0.8405

NZ Dollar/Dollar 0.622 0.6187 0.56% -1.54% $0.6232 0.6184

Dollar/Norway 10.5653​ 10.5945 -0.28% 4.24% 10.6202 10.5583

Euro/Norway 11.7638 11.7919 -0.24% 4.81% 11.8138 11.7552

© Reuters. FILE PHOTO: Woman holds U.S. dollar banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

Dollar/Sweden 10.1835 10.189 -0.05% 1.16% 10.1987 10.16

Euro/Sweden 11.337 11.3237 0.12% 1.9% 11.345 11.307

Forex

Dollar now priced for perfection – BoA Securities

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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.

 

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Forex

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

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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. 

 

 

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Forex

Dollar strengthens on elevated US bond yields, tariff talks

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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.

© Reuters. FILE PHOTO: A money exchange vendor holds U.S. dollar banknotes at his shop in Beirut, Lebanon December 21, 2022. REUTERS/Mohamed Azakir/File Photo

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.

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