US dollar reaches 1-month high on nervous sentiment; pound jumps on inflation data
THE greenback hit a one-month high against a basket of its peers on Wednesday (Jan 17), as the safe haven gained on the hit to sentiment from soft Chinese data and global rate setters arguing against imminent cuts, while sterling rose on higher British inflation.
The US dollar index reached 103.58, its highest since Dec 13, extending gains after a 0.67 per cent jump on Tuesday. It was last up a fraction on the day at 103.34.
That jump was driven in part by the Federal Reserve’s Christopher Waller saying that while the US is “within striking distance” of the Fed’s 2 per cent inflation goal, the central bank should not rush towards cuts in its benchmark interest rate until it is clear lower inflation will be sustained.
Market expectations of a rate cut in March have eased to around a 60 per cent chance versus roughly a 75 per cent view in the prior session, according to CME’s FedWatch Tool, and US yields rose.
Also in the mix was data which showed China’s economy grew 5.2 per cent in 2023, slightly more than the official target, but it was a far shakier recovery than many analysts and investors expected.
Some December indicators released along with China’s gross domestic product data were more grim, suggesting the country’s protracted property crisis is deepening.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
That weighed on Asian and European shares, and the broader market mood.
“A combination of weakish China data and a pushback by both ECB (European Central Bank) and Fed officials against early easing is weighing on risk sentiment and supporting the (US) dollar,” said Chris Turner, global head of markets at ING.
“It is hard to see that sentiment changing today should US December retail sales come in on the strong side.”
That data is due at 1.30 pm GMT, and will give the latest indication of the health of the US economy.
The US dollar traded at its highest since early December against the rate-sensitive Japanese yen, last up 0.3 per cent at 147.64, while the China-exposed Australian dollar hit its lowest since Dec 12, and was last down 0.3 per cent at US$0.6564.
The greenback also hit a new two-month high of 7.2282 on China’s offshore yuan.
The euro was flat at US$1.0819, steadying after a 0.7 per cent drop on Tuesday after Waller’s remarks, while comments from ECB policymakers also pushed back on imminent rate cuts in Europe, which helped put a floor under the euro.
Investor bets for ECB rate cuts are excessive and possibly self-defeating because they could actually hold back monetary easing, Dutch central bank chief Klaas Knot said on Wednesday.
The pound was the exception in climbing on the US dollar, up 0.43 per cent to US$1.2690, as a rise in British inflation data reinforced market expectations that the Bank of England (BOE) will be slower to cut rates than other central banks.
“(The data) supports our view that while price growth is set to cool faster than the BOE had anticipated, continued economic resilience will prevent inflation from cooling at a pace that would justify rate cuts in the first half of this year,” said Nick Rees, FX market analyst at Monex Europe.
He said this would be supportive of the pound and “is likely to play out most clearly on crosses, particularly against the euro, as is visible in the market response to today’s data”.
The euro dropped to a one-month low on the pound and was last down 0.4 per cent at 85.73 pence. The pound was also up 0.8 per cent against the Australian dollar at a four-month high, and up 0.7 per cent on the yen. REUTERS
Share with us your feedback on BT's products and services
