US dollar finds footing as investors await midterm results; cryptos jittery

THE US dollar steadied near its weakest in two months against the euro on Wednesday (Nov 9) as traders waited on results from US elections and on inflation data this week that will guide expectations for the interest rate outlook.

Cryptocurrencies were also top of mind for investors, as they fall sharply for a second day after Tuesday’s nerves about the stability of exchange FTX turned to a rush of withdrawals and ultimately a bailout deal from bigger rival Binance.

The euro was a touch lower, down 0.2 per cent US$1.0051, just off the US$1.0096 hit overnight, its highest since Sep 13.

The US dollar also weakened to 145.17 yen in Asia trade, its lowest level against the Japanese currency this month, and dropped to 0.9814 Swiss francs, its lowest in nearly five weeks.

The US currency has been under downward pressure in the last week or so from bets on the Federal Reserve (Fed) easing back on interest rate rises and on China easing Covid rules and driving growth.

In focus on Wednesday were US mid-term election results, which showed an uncertain picture with Republicans still favoured to win a majority in the House of Representatives though the Senate remained a toss-up.

“If the Republicans can get a block in one of the Houses, then ultimately, that could be less inflationary, because it will mean the Democrats won’t be able to spend nearly as much money, so in terms of yields, that could be a good thing,” said Michael Hewson, chief markets strategist, CMC Markets.

“It’s potentially also positive for stock markets and probably why we’ve seen a weaker US dollar, but obviously, the main focus remains on tomorrow’s CPI numbers and particularly the core number.”

Investors are waiting to see whether Thursday’s CPI figures will spur the Fed to continue to increase interest rates well into next year in a bid to curtail inflation, or whether they might be able to pause.

Markets repositioned for an even higher peak in US rates after last week’s Fed meeting, though some are starting to wonder whether rate expectations have little further to go, capping the US dollar’s gains.

“We wouldn’t be surprised to see US dollar selling persist even if we get another upside surprise with CPI. After all, the US dollar sold off last month on the back of a stronger CPI print,” said MUFG analysts.

They said one factor that could undermine the US dollar was “a view that we have in fact finally reached a terminal rate that provides much less reason to believe that US rates can propel the US dollar further higher from here.”

The greenback managed to bounce back against some currencies on Wednesday, however, gaining against the Aussie dollar, down 0.53 per cent, and sterling which fell 0.7 per cent to US$1.1463, with traders attributing the decline in the pound to technical factors.

Cryptocurrency markets have had a wild few days, and were attempting to find a floor on Wednesday after crypto exchange Binance announced plans to buy rival FTX in a bailout. A surge in withdrawals had left FTX struggling.

FTX’s native token was in freefall on Tuesday and bitcoin fell to a two year low of US$17,114.

Bitcoin was last down around 4.5 per cent at 17,700, but FTT fell a further 20 per cent. REUTERS