Greenback extends drop, still vulnerable after Fed dials back hawkish rhetoric
THE US dollar extended its decline on Monday (Nov 6), having fallen last week by the most since July after the Federal Reserve dialled down its hawkish rhetoric and US data showed signs of moderation.
The US dollar index was hovering around a six-and-a-half week low of 104.84, after falling around 1.4 per cent last week.
The euro gained 0.2 per cent to a seven-and-a-half week high of US$1.0756.
Global stocks had their strongest week in a year last week as expectations the Fed was done raising rates gathered steam.
Other indicators such as weakness in US jobs data, softer manufacturing numbers and a decline in longer dated Treasury yields also hurt the US dollar, while stoking rallies in sterling and the Aussie dollar, and causing the yen to bounce from the weaker side of 150 per US dollar.
“We always say bad news (weak economic data) is good news,” said Tina Teng, a market analyst at CMC Markets. “So it’s good, then there is expectation for the Fed and other central banks to end the rate hike cycle sooner.”
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She expected the US dollar to remain on a weaker trend through November.
Dane Cekov, senior FX strategist at Nordea, called last week’s moves an “overreaction”, saying the jobs data was a “mixed bag”.
“You could still see a somewhat weaker US dollar in the short term, but if the (euro-US dollar) rally continues it needs to get fuel from somewhere.”
JPMorgan analysts say a sustained US dollar sell-off would need signs of improvement in the eurozone, China and other regions, which they say are “still tenuous”.
The latest growth and inflation data from the eurozone and manufacturing surveys from China bear that out.
Eurozone recession fears hardened on Monday after a survey showed a downturn in business activity accelerated last month as demand in the services sector weakened further.
“Final PMIs (purchasing managers indices) released today ... are consistent with our forecast that eurozone GDP (gross domestic product) will contract again in Q4,” said Capital Economics Europe economist Adrian Prettejohn.
“They also suggest that price pressures are continuing to ease.”
Futures markets imply around an 80 per cent probability that the European Central Bank will be cut rates by April and around a 90 per cent chance the Fed is done hiking, with an 86 per cent chance the Fed’s first policy easing would come as soon as June.
Fed chair Jerome Powell speaking about balanced economic risks sent Treasury yields lower last week, with further declines after the softer US data.
The US government also cut its refinancing estimate for this quarter, and announced lower increases in long-dated debt auctions than expected.
Yields on two-year notes have dropped 25 basis points in roughly two weeks, while 10-year yields languished near a five-week low and last stood at 4.593 per cent. The front end of the curve remains deeply inverted.
The Japanese yen slipped 0.2 per cent to 149.625 per US dollar. Nordea’s Cekov said the yen likely needs to be around the 155 per US dollar mark for Japanese authorities to consider intervention or to talk the currency up.
The yen hit 151.74 per US dollar last week, edging close to October 2022 lows that spurred several rounds of US dollar-selling intervention by the Bank of Japan.
Sterling was up 0.4 per cent at US$1.2425. Britain’s GDP data for the third quarter is due this week and, while the pound rallied strongly last week in a market that is heavily short the currency, it is still down about 5.5 per cent since a July peak.
In cryptocurrencies, bitcoin was inching higher at US$35,179. The risky asset has been recently buoyed by the expected end of central bank policy tightening cycles and the prospect of approval for new spot bitcoin exchange-traded funds. REUTERS
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