Dollar regains footing as bets on aggressive US rate cuts fade

The dollar traded near a three-week high on Tuesday against its peers, as investors reduced bets on aggressive U.S. interest rate cuts ahead of the Federal Reserve chairman’s testimony to Congress on the economy.

Sterling was pinned near a six-month low versus the dollar on speculation the Bank of England will soon join other major central banks in easing monetary policy in response to growing worries about the global economy and Britain’s exit from the European Union.

Fed chief Jerome Powell’s comments in two-day testimony to Congress beginning on Wednesday will be closely watched to determine whether traders will continue to pare bets for deep interest rate cuts, which could help the dollar continue its rebound against major currencies.

“The dollar is bouncing back, so there are some downside risks for the euro and cable,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

“There is a risk the Fed will not be as dovish as people thought. Central banks ahead of the curve in this cycle are Australia and New Zealand. The Fed is following, but the European Central Bank and the Bank of England are laggards.”

The dollar index versus a basket of six major currencies was little changed at 97.374 on Tuesday, which was close to a three-week high of 97.443 hit on Friday.

The greenback was steady at 108.75 yen, near a six-week high of 108.81 yen reached on Monday.

Investors will closely analyse Powell’s comments when he delivers his semi-annual monetary report before Congress to gauge how far the U.S. central bank will lower interest rates.

A sharp rebound in U.S. job growth in June reduced expectations that the Fed will cut interest rates by 50 basis points when it meets at the end of July.

A week ago, the market forecast an 80.1% chance of a 25-basis-point cut, and a 19.9% chance of a 50-basis-point cut, according to CME Group’s FedWatch tool. The chances are now 98% and 2%, respectively.

The British pound was last quoted at $1.2515, within striking distance of $1.2481, its lowest since the “flash crash” on January 3 when the pound dropped to $1.2409.

Data on UK gross domestic product and industrial output are due Wednesday, while the Bank of England will release its financial stability report on Thursday, which could help traders gauge whether the BoE will take a more dovish view of the economy.

The euro traded at $1.1216, near a three-week low of $1.1207.

The Turkish lira was steady in early trade in Asia after weakening sharply following President Tayyip Erdogan’s dismissal over the weekend of the central bank governor, sparking worries about the bank’s independence.

The lira at one point slid to a two-week low of 5.8245 to the dollar and was last quoted at 5.7291.

Dollar holds near 3-week high as bets on sharp US rate cut drop

The dollar held near three-week highs in early trading on Monday, holding on to its gains after last week’s strong U.S. jobs data lowered expectations for a sharp Federal Reserve interest rate cut.

Elsewhere, the Turkish lira fell sharply after President Tayyip Erdogan dismissed the central bank governor, sparking worries about the bank’s independence.

U.S. non-farm payrolls rebounded in June to 224,000, the most in five months, data showed on Friday, beating economists’ consensus estimate of 160,000.

The solid outcome virtually wipes out chances for a half point Fed rate cut at the end of July, but modest wage gains and other data showing the world’s largest economy was losing steam could still encourage the central bank to cut rates by 25 basis points.

“We still expect the Fed to deliver a 25 basis point rate cut this month.

The underlying trend for employment growth is still weakening, ” MUFG analysts wrote in a research note.

“Nevertheless, the US dollar should continue to trade on a firmer footing in the near-term given downside risks from a larger rate cut have diminished.”

The dollar index stood at 97.229 in early London trading, below the near 3-week high of 97.443 it hit on Friday.

The greenback’s rebound follows a period of weakness as mounting expectations for Fed rate cuts weighed on the currency.

The euro, which dropped to $1.1208 on Friday, traded at $1.1225, unchanged on the day.

The common currency came under pressure on Friday after data showed that German industrial orders fell far more than expected in May.

Traders’ focus quickly shifted to Federal Reserve Chairman Jerome Powell’s Congressional testimony, due on Wednesday and Thursday, as well as U.S. inflation data out later this week.

The British pound hit a six-month low to the dollar on Friday, after poor economic data and a rise in expectations that the Bank of England will cut interest rates.

It was last quoted at $1.2513, down 0.2% on the day.

The Turkish lira slid to as low as 5.8245 to the dollar, its lowest in two weeks, in early Asian trade. It last stood at 5.735, down 1.8% on the day.

“Some naive market participants might still hope that the new central bank governor will come across as being independent in a statement announced for this week and at least does not cut interest rates right away,” Commerzbank  analysts said.

“That may be the case but does not change the fact that medium term sensible Turkish monetary policy will not be possible.”

In a written statement on Saturday, new governor Murat Uysal said he would implement monetary policy instruments independently with a focus on achieving and maintaining the primary objective of price stability.

The Japanese currency strengthened 0.1% to 108.34 yen per dollar, above 3-week lows of 108.64 yen.

Sinking yields puts euro on track for biggest weekly drop in 3 weeks

The euro fell a fifth of a percent against the dollar on Friday and is set for its biggest weekly drop in three weeks as a relentless slide in government bond yields forced investors to look for higher-yielding assets elsewhere.

Falling yields globally has also raised concerns that policymakers, especially the European Central Bank, may have limited firepower in boosting economic growth, a factor that has weighed on the single currency.

“We have seen little evidence that unconventional tools can stimulate or sustain economic growth,” said David Lafferty, chief market strategist at Natixis Investment Managers.

“The global recovery and expansion has been historically long but has also been historically weak.”

Germany’s 10-year Bund yield breached the European Central Bank’s deposit rate of -0.40%, a level analysts say acts as a psychological barrier even though shorter-dated German bond yields already trade well below it.

But despite the fall in yields — German bond yields have dropped 65 bps this year — the single currency has been well supported at around $1.12, a level it has traded above since early June and 1.5% above a 2019 low of $1.1055 hit in late May.

Analysts say the euro’s surprising strength is due to concerns that any stimulus from the ECB after years of negative policy rates and multiple rounds of bond purchases may be dwarfed by likely big rate cuts from the Fed.

“More easing from the next ECB chief is already priced into bond markets and it will take a significant surprise for the euro to move from current levels,” said Ricardo Evangelista, a senior analyst at brokerage ActivTrades.

On Friday, the single currency edged 0.2% lower at $1.1265 and is on track for a weekly loss of 0.9% versus the dollar, its biggest weekly loss since mid-June.


Expectations of big U.S. rate cuts will not be shaken by jobs data due later, with economists polled by Reuters predicting U.S. non-farm payrolls to have increased by 160,000 in June from 75,000 in May.

Though markets are expecting as much as three rate cuts by the end of 2019, interest rate differentials between benchmark 10-year debt in the United States and Germany stands at a chunky 235 basis points.

The dollar index against a basket of six major currencies stood little changed at 96.823, having spent the previous day in a tight range as U.S. financial markets were closed for the Independence Day holiday.

The Australian dollar was a shade weaker at $0.7016 after climbing to a two-month high of $0.7048 the previous day.

The Aussie has advanced 1.4% this week with expected rate cuts from the Fed and the ECB helping shift some of the focus away from the Reserve Bank of Australia’s own easing bias.

The pound struggled near a two-week low of $1.2557 plumbed on Wednesday.

Dollar handicapped by expectations of possible Fed rate cut

The dollar was on the back foot on Thursday, trading near a one-week low versus the yen as falling Treasury yields boosted expectations the U.S. Federal Reserve will cut interest rates this month for the first time in a decade.

Government bonds are in the middle of a global rally, which has pushed U.S. Treasury yields to the lowest in more than 2-1/2 years and sent European rates to record lows on increasing bets major central banks will ease policy to bolster the global economy.

Waning expectations for a quick resolution to the United States-China trade war also hurt sentiment for the dollar.

The focus now shifts to U.S. non-farm payrolls data due on Friday, which economists expect to have risen by 160,000 in June, compared with 75,000 in May.

Positive payroll data is unlikely to buoy the dollar as expectations for U.S. rate cuts are strong, given low inflation and the fallout from the tariffs the United States and China have already imposed on each other’s goods.

“Everyone from the Reserve Bank of Australia to the Fed is talking about inflation disappointing to the downside,” said Mayank Mishra, macro strategist at Standard Chartered Bank in Singapore.

“The Fed arguably has more room to ease than anyone else. That, in theory, should lead to a weaker dollar.”

The dollar was little changed at 107.80 yen on Thursday, after touching a one-week low of 107.54 yen on Wednesday.

The greenback has fallen 3.5% versus the yen in the past three months amid growing signs the Fed will cut rates at its July 30-31 meeting.

Benchmark 10-year U.S. yields touched 1.939%, the lowest since November 2016, before recovering slightly. Lower yields reduce the appeal of holding the dollar.

The dollar index against a basket of six major currencies was slightly lower at 96.734.

Global forex trading likely will be subdued on Thursday as U.S. financial markets are closed for a public holiday.

U.S. President Donald Trump’s administration said on Wednesday it is scheduling a call with Chinese negotiators next week that would mark the resumption of talks between the two countries.

Expectations for a smooth path to resolving the dispute have waned after Trump said any agreement would have to be tilted somewhat in favor of the United States.

Adding to a sense of unease about trade talks, Trump late on Wednesday repeated his view that China and Europe are manipulating their currencies to pump money into their economies and said the United States should match these efforts, according to a tweet.

“When U.S. yields are this low, you can’t expect people to pile in and buy the dollar,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.

“Sentiment is tilted toward testing the dollar’s downside. There are expectations for lower rates in Europe and Britain, so it may be easier for the dollar to move versus the yen.”

The Australian dollar stood at $0.6929, having climbed 0.5% overnight and away from a $0.6956 low touched early in the week.

The RBA has already cut rates this month to a record low of 1.00% and futures imply a 92% chance rates will be down at 0.75% by Christmas, but the Aussie has rebounded due to expectations that central banks in the United States and Europe will ease policy even further.

The euro was little changed at $1.1285 on Thursday, near a two-week low of $1.1268.

The common currency has weakened since IMF Managing Director Christine Lagarde, perceived as a policy dove, was nominated as the next European Central Bank president.

Sterling traded hands at $1.2586, mired near a two-week low of $1.2557 due to speculation the Bank of England will abandon its preference to raise interest rates and swing to the dovish camp as the trade war and uncertainty about Britain’s negotiations to leave the European Union impact the outlook.

Dollar struggles as US yields fall, dovish Bank of England weighs on pound

The dollar struggled for traction on Wednesday as fading hopes for any near-term Sino-U.S. trade deal revived safe-haven demand and drove U.S. bond yields to their lowest levels since late 2016.

U.S. yields also tracked a decline in their British counterparts to 2-1/2-year lows on dovish-sounding comments from Bank of England Governor Mark Carney, which in turn weighed on the pound.

The dollar index against a basket of six major currencies was a shade lower at 96.697 after pulling back from 96.875 scaled on Tuesday, its highest since June 20.

The pound was steady at $1.2592 after shedding 0.35% the previous day, when it touched a two-week trough of $1.2584.

The BoE’s Carney said on Tuesday that a global trade war and a no-deal Brexit were growing risks to Britain’s economy, which might need more help to cope with a downturn, prompting investors to increase their bets on central bank easing.

The dollar lost 0.3% to 107.580 yen, having been nudged off a 12-day high of 108.535 scaled at the start of the week.

“The dollar fell below 108.00 yen again in light of BoE Governor Carney’s dovish comments, which helped depress global bond yields,” said Shinichiro Kadota, senior strategist at Barclays in Tokyo.

“Yields declined as the BoE, up until now, was seen as the only central bank which was not as dovish as others.”

The euro was little changed at $1.1291 following a volatile session on Tuesday, when it swung between a low of $1.1275 and a high of $1.1322.

The common currency had received a lift after a media report that European Central Bank policymakers are in no rush to cut interest rates at a July policy meeting. But it later slipped after IMF Managing Director Christine Lagarde, perceived as a policy dove, was nominated as the next ECB president.

“It will be difficult for Lagarde to emulate the eye-catching policy steps which (current ECB President Mario) Draghi implemented,” said Daisuke Karakama, chief market economist at Mizuho Bank.

But the euro zone’s requirements will remain the same -it needs lower yields and a weaker currency – and the ECB is unlikely to undergo a dramatic change in policy under Lagarde, he added.

The Australian dollar was flat at $0.6991 after gaining about 0.4% the previous day. The Aussie had advanced after the Reserve Bank of Australia cut interest rates but offered a more balanced outlook.

The 10-year U.S. Treasury yield extended an overnight fall and brushed 1.948%, its lowest since November 2016.

At the G20 summit in Japan last weekend, Washington and Beijing agreed to restart trade talks after U.S. President Donald Trump offered concessions.

But investors were wary about the chances of a resolution to the year-long trade war between the world’s two biggest economies, especially given the recent breakdown in talks in May and Trump’s comments that any deal would have to be tilted in favor of the United States.

Sentiment was also dented by Washington’s threat of tariffs on $4 billion of additional European Union goods in a long-running dispute over aircraft subsidies.

Yuan, dollar soar and safe-haven currencies slide after US-China trade truce

The dollar and offshore Chinese yuan rallied on Monday after the United States and China agreed to restart their troubled trade talks, while the Japanese yen and Swiss franc were the big casualties as investors sold safe-haven currencies.

While reports of an agreement had been flagged ahead of U.S. President Donald Trump and his Chinese counterparty Xi Jinping’s meeting on the sidelines of the G20 meeting, the outcome was more positive than investors had expected.

Trump said he would hold back on new tariffs and that China will buy more farm products.

Trump also said the U.S. Commerce Department would study whether to take Huawei off the list of firms banned from buying components and technology from U.S. companies without government approval.

Global stocks jumped and investors dumped safe-haven assets.

China’s offshore yuan rose more than 0.5% to as high as 6.8165 yuan per dollar, near a two-month high, before easing back to 6.8464 after disappointing factory activity data.

The dollar, which has fallen in recent weeks on rising expectations for Federal Reserve interest rate cuts, rose 0.4% against a basket of currencies, its index hitting 96.601. Versus the euro it rose 0.4% to $1.1328.

“The compromise reached between Trump and Xi at the week’s G20 meeting went further than most had expected, with Trump putting the next tranche of tariffs on hold and reopening US companies’ ability to supply Huawei,” said RBC  currency strategist Adam Cole.

“It is not clear, however, whether the latter will clear congress and there is plenty of scope for trade talks to break down again in the future.”

The Japanese yen, which investors tend to buy when they are looking for a safe place to put their money, dropped 0.6% to as low as 108.53, its weakest since June 19.

The Swiss franc lost 0.4% versus the euro to 1.1142 francs. It also slumped 0.8% against the dollar.

The Australian dollar, sensitive to the economic fortunes of China, the country’s largest trading partner, dropped 0.4% at $0.6993, with the weaker-than-expected factory data out of China overshadowing the trade ceasefire.

Britain’s sterling slipped 0.2% to $1.2670.

This week sees the release of some crucial U.S. economic data including non-farm payrolls on Friday and non-manufacturing activity on Wednesday, which should help investors better assess whether the Federal Reserve will cut interest rates later this month.

“Some Fed officials curbed easing views recently and the data will help the market get a clearer picture of whether the Fed stands poised to cut rates this month,” said Koji Fukaya, director at FPG Securities.