Forex

US dollar stumbles, drops to more than one-year low as inflation eases in June

Published

2 years ago

July 13, 2023

US dollar stumbles, drops to more than one-year low as inflation eases in June

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar crashed to its lowest in more than a year on Wednesday after data showed the rise in U.S. consumer prices moderated in June, suggesting the Federal Reserve may have to raise interest rates only one more time this year.

The dropped to as low as 100.54, the lowest since April 2022, and was last down 1% at 100.55, on track for its largest daily percentage loss since early February.

The greenback also hit its lowest against the Swiss franc since early 2015 after the inflation report. It was last down 1.3% at 0.8675 francs, having fallen to a session low of 0.8660 earlier, its weakest since the Swiss National Bank removed the peg from the Swiss currency in January 2015.

Data showed core U.S. consumer prices rose just 0.2% in June, compared with forecasts for a gain of 0.3%. The monthly rise in core prices was the smallest since August 2021. On an annual basis, U.S. core CPI advanced 4.8%, lower than market expectations for a 5% increase. That was also the smallest annual increase in more than two years.

“Today’s softer core inflation release reinforces our base case and the market’s initial read on the Fed’s last rate decision that the U.S. central bank will only be able to hike one further time this cycle,” wrote Simon Harvey, head of FX analysis at Monex Europe in London, in emailed comments.

The inflation report “resulted in the dollar extending its post-payrolls decline, with losses continuing to be most visible against currencies that are deeply undervalued and sensitive to U.S. yields, such as the Norwegian crown, Swedish crown, and Japanese yen,” he added.

U.S. rate futures still showed traders overwhelmingly expect the policy rate to rise a quarter point, to a 5.25%-5.5% range, at the Fed’s July 25-26 meeting, but now see about a 25% chance of another rate hike before year’s end, down from about 35% before the report.

The euro surged to its highest since March last year of $1.1134. The single European currency last traded up 1.1% at $1.1131.

Jordan Rochester, senior G10 FX strategist at Nomura in London, in a research note said he is raising his conviction on his long euro/dollar trade, targeting $1.14 by end-September. Previously, it was $1.12.

He said bad news for euro area growth has already been priced in, while in the United States, “disinflation pressures…are becoming clearer with core CPI data surprising markets to the downside.”

Against the yen, the dollar dropped to a six-week low of 138.17 yen. It last changed hands at 138.375, down 1.4%.

Sterling struck a fresh 15-month high of $1.30, last trading up 0.4% at $1.2984. The pound’s rally is being driven by expectations for the Bank of England to deliver more rate rises to tame UK inflation, which is the highest of any major economy.

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Currency bid prices at 2:15PM (1815 GMT)

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

Previous Change

Session

Dollar index 100.5500 101.6000 -1.01% -2.841% +101.6100 +100.5400

Euro/Dollar $1.1131 $1.1010 +1.11% +3.89% +$1.1134 +$1.1008

Dollar/Yen 138.3750 140.3800 -1.41% +5.56% +140.3400 +138.1700

Euro/Yen 154.02 154.49 -0.30% +9.78% +154.5200 +153.5200

Dollar/Swiss 0.8675 0.8794 -1.31% -6.14% +0.8793 +0.8660

Sterling/Dollar $1.2984 $1.2931 +0.39% +7.34% +$1.3000 +$1.2905

Dollar/Canadia 1.3184 1.3230 -0.35% -2.69% +1.3234 +1.3144

Aussie/Dollar $0.6791 $0.6687 +1.56% -0.37% +$0.6796 +$0.6683

Euro/Swiss 0.9656 0.9679 -0.24% -2.41% +0.9695 +0.9629

Euro/Sterling 0.8571 0.8511 +0.70% -3.06% +0.8575 +0.8506

NZ $0.6302 $0.6198 +1.69% -0.73% +$0.6307 +$0.6183

Dollar/Dollar

Dollar/Norway 10.1130 10.3530 -2.39% +2.98% +10.3490 +10.1050

Euro/Norway 11.2635 11.3868 -1.08% +7.34% +11.4120 +11.2340

Dollar/Sweden 10.3862 10.6608 -1.38% -0.21% +10.6696 +10.3745

Euro/Sweden 11.5622 11.7241 -1.38% +3.70% +11.7573 +11.5473

Forex

Japanese yen subdued despite BOJ deputy governor’s rate hike hint

Published

19 hours ago

January 14, 2025

Investing.com– The Japanese yen exhibited minimal movement on Tuesday, despite Bank of Japan (BOJ) Deputy Governor Ryozo Himino indicating a potential hike in the upcoming policy meeting.

Himino suggested that the central bank might consider raising rates, citing sustained wage growth and expectations of a clearer U.S. policy landscape following President-elect Donald Trump’s inaugural address later this month.

The yen’s pair edged 0.1% higher to 157.62 yen on Tuesday.

In recent months, the BOJ has been adjusting its monetary policy to address rising inflation. In March last year, it ended its negative interest rate policy, and by July, it had increased the short-term policy rate to 0.25%.

These measures aim to achieve a stable 2% inflation target, supported by robust wage growth and a weakening yen, which have contributed to higher import costs.

Despite these developments, the yen’s exchange rate against the U.S. dollar remained relatively stable, reflecting market skepticism about the likelihood of an imminent rate hike.

Analysts suggest that while the BOJ is signaling a shift towards policy normalization, uncertainties surrounding global economic conditions and domestic wage dynamics may lead to a cautious approach.

Barclays (LON:) expects the central bank to implement rate hikes in March and October, with a terminal rate of 0.75%.

The BOJ’s next policy meeting is scheduled for January 23-24, where new growth and price projections will be discussed.

Forex

UBS notes hedge funds sell GBP amid UK fiscal worries

Published

19 hours ago

January 14, 2025

Forex

US dollar to stay stronger for longer, UBS says

Published

19 hours ago

January 14, 2025

Investing.com — UBS strategists expect the US dollar “to stay stronger for longer,” citing robust US economic activity and ongoing tariff concerns impacting other regions.

Monday saw the (DXY) soar to its highest level since November 2022, trading above the 110 mark during the session. This represents a roughly 9% appreciation since late September.

The US dollar’s recent strength has been bolstered by better-than-expected domestic data, including nonfarm payrolls and the services sector purchasing managers’ index. These positive indicators have led to a decrease in the anticipated number of Federal Reserve rate cuts this year, with the consequent rise in US yields lending broad support to the USD.

While US economic data is expected to remain solid in the near term, the outlook for Europe is less optimistic, with subdued growth prospects.

Although growth in China is forecasted to accelerate to 5% year-over-year for the fourth quarter, the threat of US tariffs poses a significant risk. Political and economic uncertainties in South Korea, the European Union, and the UK have been linked to weakness in their respective currencies.

According to UBS, potential monetary policy divergence is among the key factors that could further propel the dollar upward in the near term.

While the Fed is expected to cut rates by a total of 50 basis points in the second and third quarters, the European Central Bank is projected to reduce rates by 100 basis points in the first half of the year.

“Policy divergence is a powerful driver of currencies, which leads to trending FX markets and the potential for overshooting exchange rates,” strategists led by Mark Haefele wrote.

The firm also points out that tariff risks may not be fully accounted for in the current USD valuation. Despite the dollar’s recent rally being largely attributed to solid US macroeconomic data, the introduction of new tariffs could drive the dollar even higher.

UBS suggests that if tariffs are implemented, the DXY could trade between 110 and 115, with significant impacts on other major currency pairs.

“If tariffs were to materialize, DXY could trade in a 110-115 range, could drop below parity, could slide below 1.20, and could move toward 0.94, in our view,” strategists noted.

However, the investment bank believes that the story of 2025 could be a tale of two halves, with the dollar strength in the first half of the year potentially reversing in the second half.

The current trading position of the USD, which is considered strongly overvalued and shows the highest level of dollar net length since 2015, supports this view.

UBS’s revised forecasts for the EUR/USD pair reflect this expected trajectory. Strategists expect the pair to trade at 1.00 in March, 1.02 in June, and 1.06 in December 2025.

In the case of China, despite the possibility of dramatically higher effective tariff rates, the CNY has only partially priced in this risk, with UBS reiterating its forecast for the to reach 7.50 by June.