US dollar shakes off weakness after investors rethink Fed outlook
THE greenback edged up on Wednesday (Nov 15) after its biggest drop in a year the day before, when cooler US inflation data added to investor conviction that the Federal Reserve may not raise rates again, while the pound fell after slower UK inflation figures.
Tuesday’s steep drop in the US dollar was sparked by data showing US consumer prices were unchanged in October, with the annual rise in underlying inflation the smallest in two years. In the 12 months through October, the consumer price index climbed 3.2 per cent – below economists’ estimates – after rising 3.7 per cent in September.
Monthly retail sales data is due at 1.30 pm GMT (9.30 pm SGT) and is expected to show US consumer spending fell 0.3 per cent in October from September, which would mark the first monthly contraction since March this year.
Investors have all but wiped out the chance of another rate hike from the Fed in December, while bets of a rate cut in May next year increased to around 50 per cent, indicated the CME Group’s FedWatch Tool.
In Britain, inflation eased to its slowest pace in two years in October, which prompted a reassessment of the outlook for the Bank of England’s policy and dented sterling.
“For me what this does concern, is we’re done, when it comes to rate hikes, and it’s a question of when do rate cuts come and that’s what markets are staring to price, particularly if you look at the bond market,” CMC Markets chief market strategist Michael Hewson said.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The US dollar index, which measures the performance of the US currency against six others, was up 0.16 per cent at 104.26, not far from Tuesday’s two-month low of 103.98.
The pound eased back from Tuesday’s two-month highs after data showed British inflation ran at its slowest pace in two years in October, at 4.6 per cent. This was below forecasts for a reading of 4.8 per cent and below September’s 6.7 per cent reading.
Sterling was last down 0.3 per cent at US$1.2463. On Tuesday, the pound rose by 1.8 per cent against the US dollar, marking its biggest one-day gain in a year.
The euro eased 0.3 per cent to US$1.0848 after touching its highest since August the previous day.
The US dollar/yen pair was flat at 150.42, after data showed Japan’s economy contracted in July-September, complicating the central bank’s efforts to ease out of its ultra-easy monetary policy. On Monday, the yen hit a one-year low, close to 152.
Still, Sim Moh Siong, currency strategist at the Bank of Singapore, sees softer US yields and the risk of intervention by the Japanese government limiting the likelihood of the yen weakening much further than it already has.
Between those factors and a Fed which is likely to retain a somewhat hawkish tone, US dollar/yen is a “range-bound story for the time being”, he said.
The US dollar was knocked back from the 152 level on Monday, after a routine options expiry unleashed some profit-taking that took the yen to around 151.20.
LSEG data showed Wednesday’s New York expiry has around US$3.9 billion in open interest between 150.50 and 152, with US$2.6 billion at 152 alone, which might create more volatility.
The offshore Chinese yuan, meanwhile, received some support. It briefly ticked up to a three-month high of US$7.2385 against the US dollar, after domestic industrial output and retail sales growth beat expectations.
Evidence of ongoing weakness in China’s property sector, where data showed sales fell faster in October and investment in real estate slumped, took some of the shine off the rally.
The offshore yuan was at 7.2484 per US dollar, flat on the day. REUTERS
Share with us your feedback on BT's products and services
