Dollar eyes third weekly acquire as increased US fee expectations collect steam

May 26, 2023 | blog


Dollar eyes third weekly acquire as increased US fee expectations collect steam


A foreign money alternate vendor counts US greenback notes at Tahtakale in Istanbul on March 22, 2021. AFP PHOTO

The greenback eased on Friday however remained close to a two-month excessive towards its main friends, buoyed by expectations that US rates of interest might stay increased for longer.

Debt ceiling negotiations between US President Joe Biden and prime congressional Republican Kevin McCarthy additionally continued to forged a shadow over the market temper, although information that the 2 are closing in on a deal aided investor sentiment and induced the buck to pause its latest rally.

The greenback edged away from a six-month excessive towards the yen in Asia commerce and final stood at 139.77, having reached 140.23 yen within the earlier session, its highest since November.

Against a basket of currencies, the US greenback slipped 0.13 p.c to 104.09, simply off Thursday’s two-month excessive of 104.31.

The index was, nonetheless, on observe for a 3rd straight weekly acquire of greater than 0.8 p.c, as merchants ramped up their expectations of how a lot additional charges might rise within the United States.

“Recent moves in currencies have been mainly driven by a sharp repricing of FOMC policy,” mentioned Carol Kong, a foreign money strategist on the Commonwealth Bank of Australia (CBA).

Money markets at the moment are pricing in a 40 p.c likelihood that the Federal Reserve will ship one other 25-basis-point fee hike at its coverage assembly subsequent month, whereas expectations that the Fed will start reducing charges later this 12 months have been scaled again.

Data launched on Thursday confirmed that the variety of Americans submitting new claims for unemployment advantages elevated reasonably final week to 229,000, coming in decrease than expectations.

The British pound and the euro had been struggling to recoup their losses towards a stronger greenback.

Sterling gained 0.13 p.c to $1.2337, although it was nonetheless headed for a weekly lack of greater than 0.8 p.c. The euro rose 0.15 p.c to $1.0741, however was not removed from its two-month low of $1.0708 hit within the earlier session.

The single foreign money was additionally weighed down by affirmation that Europe’s largest financial system Germany slipped right into a recession in early 2023.

Among different currencies, the Aussie was final 0.22 p.c increased at $0.6520. It slumped to a greater than six-month low of $0.6490 earlier within the session, additional pressured by China’s faltering post-COVID financial restoration.

“Data in the near-term for China will remain pretty weak and continue to point to a soft consumption recovery,” mentioned CBA’s Kong. “That will be another weight to the Aussie.”

The Australian greenback is commonly used as a liquid proxy for the Chinese yuan.

The kiwi rose 0.15 p.c to $0.6071, although it was headed for a weekly lack of greater than 3 p.c, its largest since September, after the Reserve Bank of New Zealand earlier this week shocked markets by signalling it was finished tightening.

China’s yuan rebounded from a close to six-month low towards the greenback as some main state-owned banks bought the US foreign money to stop the yuan from sinking additional.

“General renminbi depreciation is back in play,” mentioned Alvin Tan, head of Asia FX technique at RBC Capital Markets.

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