The U.S. dollar held near multi-month highs on Friday as investors warily awaited U.S. inflation data, while the pound nursed modest losses after Bank of England (BoE) policymakers leaned away from flagging rate rises.
Early Asia trade was steady, with the euro pinned below its 200-day moving average at $1.1930 and the yen just short of a 15-month low at 110.955 per dollar.
The dollar vaulted to its highest levels since March against the euro last week – and to its highest since March 2020 on the yen – after the U.S. Federal Reserve surprised markets by projecting interest rate rises sooner than expected in 2023.
Subsequent rhetoric from Fed chair Jerome Powell seems to have calmed nerves in bond and stock markets about hikes any time soon, but the dollar has held its gains and traders are wary of further rises if inflation is hotter than forecast.
Economists polled by Reuters expect core personal consumption expenditures index to post year-on-year gains of 3.4%, a rise even faster than the nearly three-decade high pace of 3.1% recorded last month. The data is due at 1230 GMT.
“The dollar can jump if inflation surprises to the upside,” said Joe Capurso, head of international economics at the Commonwealth Bank of Australia in Sydney. “Upside inflation surprises have been the trend in the U.S. recently,” he said.
The stronger dollar has kept other majors in check through the week, even against currencies where rate rises are likely to land sooner than in the United States.
The New Zealand dollar has crept back above its 200-day moving average to $0.7063, but it remains well shy of February highs above 74 cents. In Australia, despite booming terms of trade, the Aussie held at $0.7584.
“A more balanced dollar outlook prevails after the Fed’s decisive policy shift,” Westpac strategist Sean Callow said.
“The Australian dollar’s strong support from commodity prices produces fair value estimates in the mid-0.80s,” he said.
“Yet recent price action has been in the mid-0.70s. With risk appetite looking resilient, any narrowing in this gap probably depends on how far the (Fed)-inspired U.S. dollar recovery can extend.”
The U.S. dollar index was steady at 91.833, off a week-ago high of 92.408 but clear of troughs below 90 that it had plumbed in May.
Sterling had started to move away from its post-Fed lows, but was the weakest G10 currency overnight and fell 0.3% after the BoE failed to provide any hint it was in a hurry to hike rates and warned against “premature tightening”.
“Some in the market obviously positioned for a less dovish or a hawkish tilt,” said Tapas Strickland, director of economics and markets at National Australia Bank.
U.S Dollar Gained as Fed Shifts Interest Rates Hike from 2024 to 2023, Crypto Drops
The United States Dollar gained on Thursday after the Federal Reserve raised inflation expectations to 3.4 percent and moved the year it is expected to raise interest rates from 2024 to 2023.
Policymakers suggested that interest rates could be raised twice by late 2023 given “Summary of Economic Projections” (SEP) released on Wednesday.
The dollar index, which tracks the greenback against six major currencies, gained 0.63 percent to 91.103, its highest since May 6.
The jump was as a result of renewed interest in the American economy as growth is expected to hit 7 percent in 2021 despite the rising inflation. Similarly, economic conditions are projected to improve faster than initially predicted.
The Federal Reserve Chair Jerome Powell said “the economic conditions in the committee’s forward guidance will be met somewhat sooner than previously expected.”
“The interesting thing is that the Fed has gone beyond simply acknowledging that inflation is rising and that the U.S. economy has a lot of momentum, and it has essentially shifted to a much more hawkish stance in this set of projections,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.
Powell said the central bank will maintain its $120 billion monthly bond-buying program to continue to support the economy but also suggested the possibility of pulling back on quantitative easing used to keep rates low.
“I think we’re back to talking about a mild rally in the U.S. dollar and the data becoming very important over the summer period prior to Jackson Hole and September’s meeting,” said Simon Harvey, senior FX market analyst at Monex Europe.
Billions Flow Out of Crypto Market Ahead of Better US Economy
Investors are moving money in billions out of the crypto market, according to Whale Alert reports. On Thursday, 26,999,9990 USDT valued at $26,999,990 was transferred from Binance to an unknown wallet while another 19,999,995 USDT transferred from Bitfinex to an unknown wallet.
Investors moved 20,000,000 USDT to Bitfinex; 55,180 Ether worth $134,030,121 from an unknown wallet to another unknown wallet and 55,000 Ether estimated at $133,389,506 was also transferred to an unknown wallet in the early hours of Thursday.
5,000 Ether worth $12,168,082 and 1,000 Bitcoins worth $38,953,357 were transferred from an unknown wallet to Binance. To see the rest of the money being moved out of crypto space visit Whale Alert.
Cryptocurrency market capitalisation dipped by 5.03 percent in the last 24 hours but has lost $898 billion from $2.523 trillion it attained on Wednesday, May 12, 2021, to $1.625 trillion on Thursday, June 17, 2021.
The plunge in cryptocurrency was a result of improving global economic outlook, especially in the United States of America, the largest crypto investing nation.
The unregulated crypto space is largely treated as a haven asset to avert disaster during the global downturn. Meaning, an improvement in the global economy will generally impact cryptocurrency capital inflow and overall performance. Investors King expects cryptocurrency to extend its decline in the third quarter.
Dollar Struggles for Momentum as Markets Wait for Inflation Data
The dollar stabilised on Monday after dropping on Friday following lower-than-expected U.S. jobs data, and currency markets broadly lacked momentum as investors looked ahead to key inflation data later this week.
Friday’s jobs data was seen as a relief for markets, showing a pick-up in job growth was not strong enough to raise expectations for the U.S. Federal Reserve to tighten its monetary policy any sooner, and this hurt the dollar.
There was little movement in major currency pairs during the early European session on Monday. World shares were trading near record highs.
At 1125 GMT, the dollar index was flat on the day at 90.141. The euro was down 0.1% against the dollar, at $1.2159.
The Australian dollar, which is seen as a proxy for risk appetite, was up 0.2% versus the U.S. dollar at 0.77535 .
“After Friday, we’re looking at a foreign exchange market that’s still got no reason for the Fed to change its tune, so we’ve still got accommodative monetary policy in the United States,” said Kit Juckes, head of FX strategy at Societe Generale. “But on balance we’re getting more optimistic about the global economic and health outlooks.”
Market participants were focused on U.S. inflation data and the European Central Bank meeting, both on Thursday.
Dovish rhetoric from ECB policymakers suggests the bank is in no hurry to slow the pace of buying under the 1.85 trillion euro ($2.24 trillion) Pandemic Emergency Purchase Programme (PEPP).
But U.S. Federal Reserve policymakers have begun inching toward a discussion about winding that help back.
“A divergence has opened up recently between the ECB and Fed who have signalled a willingness to discuss QE tapering at upcoming meetings,” MUFG currency analyst Lee Hardman wrote in a note to clients. “It will help dampen upward momentum for EUR/USD. However, the developments are not sufficient to alter our bullish outlook the pair beyond the near-term.”
Speculators decreased their net short dollar positions in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday.
China’s yuan hovered around the key 6.40 level, with the offshore yuan changing hands at 6.3960.
China’s export growth missed forecasts and imports grew at their fastest pace in 10 years in May, fuelled by surging demand for raw materials. read more
“In general, the trade sector continues the strong performance indicating that the manufacturing sector remains the leading role in the post-pandemic recovery,” wrote Commerzbank senior economist Hao Zhou in a note.
“However, the trade data might have little FX market impact, as the authorities vow to keep a stable currency for the time being.”
Elsewhere, the United States, Britain and other rich nations reached a deal on Saturday to squeeze more money out of multinational companies such as Amazon and Google and reduce their incentive to shift profits to low-tax offshore havens.
Investors were wary of how tech stocks would react, in terms of currency markets, but ING strategists wrote in a note to clients that the plans for a minimum global corporate tax rate of at least 15% could result in a repatriation of global capital over a longer term which would be positive for the dollar.
“Our thoughts here are that the removal (of) tax havens could have implications for the hundreds of billions of dollars of cash parked overseas by US multi-nationals – reducing the incentives to keep cash overseas,” they said.
In cryptocurrencies, bitcoin was up 2% around $36,535 , while ether was up 4.2% at $2,825 . Both were trading within the month’s relatively narrow ranges.
Dollar Heads for Weekly Loss as Taper Fears Ebb
The dollar hovered around recent lows on Friday and was set to notch a modest weekly drop as traders’ concerns at taper talk in Federal Reserve minutes faded, though a pullback in commodity prices and nerves about virus outbreaks kept losses in check.
The dollar has given back a bounce it made after a mention of possible future tapering discussions, in minutes from the Fed’s April meeting, prompted fears of early rate rises.
Investors now figure that any action remains a long way away and that the path might again be clear for a resumption of April’s downtrend as the U.S. trade and account deficits weigh.
Against the euro the dollar was parked at $1.2230, not far above the four-month low $1.2245 it hit earlier in the week and close to testing major support around $1.2345. The dollar index was held below 90 and was last at 89.777.
The index, which measures the greenback against six major currencies, is down about 0.6% for the week so far. Against the Japanese yen the dollar held at 108.74, for a weekly loss of roughly 0.5%.
“It has been just over 24 hours since markets got spooked by the prospect of the U.S. Fed tapering its asset purchases, but having proverbially slept on it, the mood seems less sour,” ANZ analysts said in a note. “Which seems reasonable – it’s not like the Fed is on the brink of wanting to actually act.”
SHADOW OF A DOUBT
Lingering doubts about the Fed as well as worry about new COVID-19 outbreaks and curbs to contain them in Malaysia, Thailand, Taiwan, Vietnam and Singapore held most of the majors steady in Asia.
Pullbacks in commodity prices after measures to curb speculation in China weighed gently on the export-exposed Australian and New Zealand dollars. Each fell about 0.2%.
“European re-opening is a theme playing out in the background, but to fear or not to fear Fed taper is still an issue,” said Bank of Singapore currency analyst Moh Siong Sim.
Sterling, which is heading for a third consecutive weekly gain and has climbed 2.6% during May so far, was pinned just short of multi-year highs as traders await retail sales and Purchasing Managers’ Index data due later on Friday.
April figures may be depressed by lockdowns, but the hope is that Britain’s reopening this week is going to lay a solid foundation for recovery in a population where just shy of three-quarters of adults have had their first inoculation shots.
Sterling last traded steady at $1.4185.
Left behind in all the recent focus on inflation, tapering and future hikes has been the Japanese yen. It is near its weakest in three years at 133.02 per euro and is poised for a fifth consecutive weekly loss against the common currency .
Against the dollar, the yen has slid 5% for the year to date and is the worst performing G10 currency. It has fared even worse on some crosses, shedding nearly 10% on the Canadian dollar and nearly 9% on the pound.
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