Forex

US dollar rally pauses, but uptrend intact; set for 3rd weekly gain

Published

2 months ago

October 20, 2024

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The U.S. dollar fell on Friday, taking a breather after five straight days of gains, as risk appetite increased following yet another round of stimulus measures from China that bolstered global equities led by Chinese stocks.

Investors cheered the Chinese government’s launch of two funding schemes to help boost its stock market. Chinese equities rallied as a result, lifting other stock markets as well, including the and the Nasdaq.

That elevated the as well and boosted commodity currencies such as the Australian and Canadian dollars at the expense of the safe-haven greenback.

The , measuring the U.S. unit’s value against six major currencies, however, was on track for its third weekly gain, currently up 0.6% this week. It has risen about 2.7% so far this month, its largest monthly gain since February 2023.

The index was last down 0.3% at 103.49, its largest daily fall since late September.

“Today’s pullback in the dollar was more China-driven. Last night, China launched measures to support the stock market,” said Erik Bregar, director, FX & precious metals risk management, at Silver Gold Bull in Toronto.

“That boosted Chinese stocks and risk sentiment more broadly and put pressure on dollar/yuan, which in turn helped lift euro/dollar. That started the dollar pullback.”

Friday’s price action for the U.S. dollar, however, was likely temporary, Bregar said.

The biggest support for the dollar over the last few weeks has been a shift in Federal Reserve policy expectations to a more moderate easing phase, after a slew of generally solid U.S. economic data. The Fed slashed benchmark rates by a supersized 50 basis points (bps) in September, prompting the rate futures market at that time to price in another jumbo move this year.

“Speculation that the Fed could follow September’s 50 bps rate cut with another similarly sized move has been blown away by a round of data pointing to a resilient U.S. economy,” wrote Jane Foley, head of FX strategy, at Rabobank in London.

“Instead, talk has emerged that the FOMC might be minded to cut rates only once more before the end of the year.”

U.S. rate futures have priced in a 95% chance that the Fed will cut rates by 25 bps next month, and a 5% probability that it will pause, or keep the fed funds rate at the 4.75%-5% target range, according to LSEG estimates. They had previously seen a further 50-bps cut likely at one of these meetings.

The futures market also expect about 45 bps cut for 2024, and an additional 104 bps reductions next year.

RISING TRUMP ODDS

In afternoon trading, the dollar slid 0.5% against the yen to 149.51. It has advanced about 0.8% on the week, however, versus the Japanese currency having broken above the 150 level on Thursday for the first time since early August. The U.S. currency also climbed 4.6% in October, its best monthly showing since February last year.

Adding to the dollar’s overall shine was the rising prospect of former President Trump winning the November election, since his proposed tariff and tax policies are seen as likely to keep U.S. interest rates high.

The dollar fell further versus the Japanese currency after data showed U.S. housing starts dropped 0.5% to a 1.354 million pace in September, after rising by a hefty 7.8% to 1.361 million in August.

The euro, meanwhile, rose 0.3% against the dollar to $1.0865, rising for the first time in eight days, and on track for its largest daily gain since Sept. 26. It was down 2.7% so far this month, on pace for its biggest monthly decline since May 2023.

It benefited on Friday from the Chinese stimulus news, after the European Central Bank cut euro zone interest rates by a quarter point on Thursday, in line with expectations. Traders are now pricing in back-to-back rate cuts at the ECB’s upcoming meetings.

In Asia, the rose against the dollar, which fell 0.3% to 7.1177 yuan. The Australian dollar, often used as a liquid proxy for the Chinese unit, was up 0.1% at US$0.6704.

The pound was one of the stronger performers against the dollar, rising 0.2% to $1.3042 after UK data showed retail sales grew more than expected in September, offering investors some reassurance about the strength of the British economy.

In cryptocurrencies, bitcoin got a lift from Trump’s rising prospects in the U.S. presidential elections since his administration is seen as taking a softer line on cryptocurrency regulation. It was last up 2.8% at $68,781 , and has been up more than 10% since Oct. 10.

Currency

bid

prices at

October

07:33

p.m. GMT

Descripti RIC Last U.S. Pct YTD Pct High Low

on Close Change Bid Bid

Session

Dollar 103.49 103.78 -0.27% 2.09% 103.78 103.

index 45

Euro/Doll 1.0864 1.0831 0.31% -1.57% $1.0868 $1.0

ar 826

Dollar/Ye 149.53 150.245 -0.48% 6.01% 150.18 149.

n 445

Euro/Yen 1.0864 162.67 -0.13% 4.39% 162.84 162.

Dollar/Sw 0.8653 0.866 -0.06% 2.83% 0.8669 0.86

iss 5

Sterling/ 1.3042 1.3011 0.24% 2.49% $1.307 $1.3

Dollar 012

Dollar/Ca 1.3807 1.3795 0.1% 4.17% 1.3815 1.37

nadian 85

Aussie/Do 0.6702 0.6696 0.1% -1.69% $0.6719 $0.6

llar 695

Euro/Swis 0.9401 0.938 0.22% 1.24% 0.9406 0.93

s 78

Euro/Ster 0.8329 0.8323 0.07% -3.91% 0.8336 0.82

ling 96

NZ 0.6066 0.6061 0.12% -3.97% $0.6079 0.60

Dollar/Do 55

llar

Dollar/No 10.9248 10.912 0.12% 7.79% 10.9394 10.8

rway 594

Euro/Norw 11.8702 11.8234 0.4% 5.76% 11.881 11.7

ay 714

Dollar/Sw 10.5255 10.5372 -0.11% 4.55% 10.5493 10.5

eden 03

Euro/Swed 11.4361 11.4144 0.19% 2.79% 11.4435 11.3

en 86

Forex

Dollar retains strength; euro near two-year low

Published

19 hours ago

December 26, 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

19 hours ago

December 26, 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

19 hours ago

December 26, 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.