The U.S. dollar stuck and hovered near the middle of recent ranges versus major peers on Thursday.
Reuters: The U.S. dollar stuck and hovered near the middle of recent ranges versus major peers on Thursday as investors digested comments from a slew of Federal Reserve officials, while crucial consumer inflation data loomed next week.
Meanwhile, the risk-sensitive Australian dollar rallied against a backdrop of gains for U.S. equity futures and a more hawkish Reserve Bank. The New Zealand dollar also advanced. Moving to a federal funds rate of between 5.00% and 5.25% “seems a very reasonable view of what we’ll need to do this year in order to get the supply and demand imbalances down,” New York Fed President John Williams said at a Wall Street Journal event. Williams’s comments followed Chair Jerome Powell’s sticking by his interest rate outlook on Tuesday, when he reiterated that a process of “disinflation” was underway.
The dollar index , which measures the U.S. currency against six rivals, slipped 0.13% to 103.32, pulling away from the one-month high of 103.96 it touched on Tuesday at the peak of a rally following Friday’s stronger-than-expected jobs report. At the same time, 103 has provided a firm floor all week. The employment data initially raised expectations that the Fed might go back to an aggressive monetary policy stance, but Powell did not lean that way in his speech. Investors will closely watch consumer price inflation data on Tuesday for additional clues on the policy outlook. OCBC currency strategist Christopher Wong said the pace of rebound in the dollar was showing tentative signs of moderation but the currency was still somewhat supported by Fed suggestions that rate hikes will continue. “On one hand Powell’s comments at the Economic Club of Washington the night before were less hawkish but on the other hand, Fed officials such as Williams (and Fed Governor) Lisa Cook took the opportunity to turn up the hawkish rhetoric,” said Wong.
Market pricing anticipates the Fed funds rate peaking just above 5.1% by July then falling by the end of the year to 4.8%. The euro rose 0.18% to $1.07325, pulling away from the one-month low of $1.067 it touched on Tuesday, as it continued to find support from Wednesday’s hawkish comments from two German officials at the European Central Bank (ECB). “From where I stand today we need further, significant rate hikes,” German central bank chief Joachim Nagel told the newspaper Boersen-Zeitung on Tuesday. His colleague Isabel Schnabel said it is not yet clear that the ECB rate hikes so far would bring inflation back to 2%. The Japanese yen was flat at 131.455 per dollar, while sterling was last trading up 0.1% at $1.2087. The Australian dollar rose 0.49% to $0.6958, while the kiwi was up 0.66% at $0.63485.
Reuters: Sterling rose on Monday from a one-month low against the dollar after Federal Reserve Chair Jerome Powell declined to meaningfully harden his tone on inflation, renewing bets of less-aggressive U.S. monetary tightening. Despite last week’s very strong U.S. employment numbers, in a question-and-answer session before the Economic Club of Washington on Tuesday, Powell reiterated he felt a process of “disinflation” was underway. “The stronger pound this morning is largely a spillover from the improved risk environment overnight, which was driven by Chair Powell’s more conservative stance on rates in light of Friday’s payrolls report,” said Simon Harvey, head of FX Analysis at Monex Europe. Harvey added that the magnitude of the pound’s rally was largely due to its underperformance on Tuesday, “so there is a bit of a catch up effect taking place”.
Sterling was up 0.34% to $1.2091 against the dollar after hitting its lowest level since Jan. 6 on Tuesday of $1.1961. It rose to a six-day high against the euro , up 0.16% to 88.89 pence, after falling last week to a four-month low versus the single currency. Traders will be waiting for economic growth numbers due on Friday for clues on what the Bank of England’s (BoE) next move will be. The central bank last week raised borrowing costs for the 10th time to 4%, but hinted it was close to ending its run of rate hikes. Money markets are currently pricing in a peak in BoE interest rates of 4.25% by the summer amid signs inflation is easing.
Britain’s labour market showed some signs of cooling in January with starting pay for people hired for permanent roles growing at its slowest pace in almost two years, according to a survey of recruitment firms published on Wednesday. BoE Governor Andrew Bailey, who will speak on Thursday to lawmakers about the central bank’s decision to raise rates to a 14-year high, said last week that labour market data would be key for understanding how quickly inflation falls.
Reuters: South Africa’s rand firmed against a slightly weaker U.S. dollar on Wednesday as investors awaited potential news from President Cyril Ramaphosa’s State of the Nation address on Thursday. At 06:50 GMT, the rand traded at 17.5300 against the dollar, about 0.2% stronger than its previous close. The dollar slipped after less-hawkish-than-expected comments from Federal Reserve Chair Jerome Powell fuelled investor hopes that the central bank may soon ease monetary policy. With no domestic economic news on Wednesday, South African markets were in a lull ahead of the president’s speech to parliament, where he is under pressure to offer some solution to address the nation’s worsening power crisis.
Daily power cuts since last year have hammered economic growth in Africa’s most industrialised nation and are proving a major test for the governing African National Congress, whose support among voters is sliding. “There is much at stake, and as a result, the USD-ZAR will tread water ahead of the speech, adopting more meaningful direction after that,” said ETM Analytics in a research note. Investors are demanding some leadership, guidance and clarity on the steps being taken to extricate SA from the electricity generation crisis, the brokerage added.
The government’s benchmark 2030 bond was weaker in early deals, with the yield up 2.5 basis points at 9.785%.
Reuters: Asian shares tracked Wall Street lower on Thursday, as a number of Federal Reserve speakers echoed Chair Jerome Powell in saying that interest rates are set to go higher, capping risk sentiment, while the dollar hovered near one-month highs. MSCI’s broadest index of Asia-Pacific shares outside Japan slid 0.3%. Japan’s Nikkei also fell 0.3%. China’s blue chips eased 0.1%, while Hong Kong’s Hang Seng Index was down 0.2%, weighed by a larger fall of 0.7% in tech stocks. On Wednesday, Alphabet Inc shares fell 7.7% after its new AI chatbot Bard delivered an incorrect answer in a promotional video, dragging the S&P 500 and Nasdaq lower by more than 1%. Adding to the cautious mood, Federal Reserve officials said more interest rate rises are on the cards as the U.S. central bank moves ahead with efforts to control inflation. None hinted though that January’s strong jobs report could drive more aggressive policy actions.
“Now that inflation has passed its peak and many central banks have begun to slow the pace of policy tightening, markets are back to scouring their communications for evidence of what’s to come,” said Jennifer McKeown, chief global economist at Capital Economics. “But despite the strong push for transparency over the past two decades, central banks are struggling to convey the right message with conflicting data adding to confusion about the inflation outlook in a post-pandemic world.” On Wednesday, New York Fed President John Williams said moving to a federal funds rate of between 5.00% and 5.25% “seems a very reasonable view of what we’ll need to do this year in order to get the supply and demand imbalances down.” Governor Christopher Waller said the battle to reach the Fed’s 2% inflation target “might be a long fight”. But Governor Lisa Cook said the big job gains in January with moderating wage growth increased hopes of a “soft landing”.
U.S. Treasury Secretary Janet Yellen said that while inflation remained elevated, there were encouraging signs that supply-demand mismatches were easing in many sectors of the economy. The bond market rallied a little after being caught wrongfooted by the January blockbuster U.S. jobs report, forcing many to reposition for a higher peak in the Fed funds rate. The two-year Treasury yield, which rises with traders’ expectations of higher Fed fund rates, eased 2 basis points to 4.4375% on Thursday, while the yield on benchmark 10-year Treasury notes slid 5 basis points to 3.6012%. Futures are pricing in the Fed’s target rate to peak at 5.132% in July, about 25 basis points higher than last week, and that by December it will have declined to 4.813%, a jump of about 40 basis points since a week ago. In the currency markets, movements were rather muted. The dollar index held close to a 1-month high at 103.45 against major peers, after last week’s stunning jobs and services data. In the oil market, Brent crude futures eased 0.2% to $84.90 while U.S. West Texas Intermediate (WTI) crude also settled 0.1% lower at $78.36. Gold was slightly lower. Spot gold traded at $1,872.48 per ounce.
Published by the Mercury Team on 9 February 2023
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