US dollar’s struggles continue as markets brace for post-Thanksgiving buzz

THE US dollar on Monday (Nov 27) began the last week of November on the back foot and was on track for its biggest monthly drop in a year as traders eyed fresh economic cues in the week ahead to determine the future path of policy rates.

A postponed Opec+ meeting, the release of the Federal Reserve’s tracked measure of inflation alongside consumer prices data in the eurozone and Australia fill this week’s calendar, which will also see a rate decision from the Reserve Bank of New Zealand (RBNZ) and Chinese purchasing managers’ index (PMI) data.

The US dollar index, which measures the currency against six major peers, slipped as much as 0.2 per cent to 103.21 and was headed for a monthly loss of more than 3 per cent, its worst performance in a year.

“Expectations are that US rates have peaked which suggests it’s time to get out of the US dollar,” said Colin Asher, senior economist at Mizuho Bank.

“US equities have now completed four weeks in a row of gains and that’s also weighing on safe-haven demand for the US dollar,” Asher said.

Traders, returning from the Thanksgiving lull late last week, continued to eye a peak in US rates and turned their attention to when the first rate cuts could come, with this week’s release of US core PCE prices likely to offer more clues on the Fed’s next steps.

“Insofar as CPI inflation rates across much of the G10 are still above central bank targets, there is a strong incentive for policymakers to support the ‘higher for longer’ theme since higher market rates will help in the battle against inflation,” said Jane Foley, senior FX strategist at Rabobank.

“Investors, however, are looking through this policy and appear increasingly pre-occupied about betting on the timing and pace of rate cuts next year.”

Market pricing shows a roughly 25 per cent chance that the Fed may begin easing monetary policy as early as March, according to the CME FedWatch tool.

Elsewhere, the British pound rose against the weaker US dollar to a more than two-month high of US$1.2644, extending its gains from last week following data showing that British companies unexpectedly reported a marginal return to growth in November after three months of contraction.

“The most recent PMI data were good in the UK, implying that things are not as quite bleak as they seemed,” Mizuho’s Asher said.

The pound was up over 3.9 per cent for the month, on track for its largest monthly gain since a more than 5 per cent rise in November last year.

The US dollar fell 0.4 per cent to 148.885 yen, while the euro gained 0.2 per cent to US$1.0954.

The Australian dollar climbed to a more than three-month high of US$0.6608, while the kiwi edged 0.3 per cent higher to US$0.6098 before the RBNZ interest rate decision on Wednesday, where the central bank is seen keeping rates unchanged at 5.5 per cent, as they have been since the last adjustment in May.

In China, the yuan slipped after the official midpoint snapped five straight sessions of strengthening, with the onshore yuan last at 7.1523 per US dollar.

Its offshore counterpart fell 0.1 per cent to 7.1582 per US dollar.

Prior to market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2 per cent band, at 7.1159 per US dollar, 8 pips weaker than the previous fix of 7.1151. REUTERS