FX Rate News

The dollar edged up from a three-month low on Wednesday, as investors dialed back expectations for aggressive U.S. rate cuts but underlying conviction the Federal Reserve will need to ease policy soon capped greenback gains.

Fed Chairman Jerome Powell on Tuesday stressed the central bank’s independence from U.S. President Donald Trump, who is pushing for significant rate cuts.

St. Louis Fed President James Bullard, seen as one of the most dovish U.S. central bankers, surprised some investors by saying a 50 basis-point cut in rates “would be overdone.”

While this hosed down expectations for a half percentage point cut at the Fed’s July meeting, investors are still expecting at least a quarter percentage point reduction.

The scaling down in expectations for large rate cuts from the Fed also knocked gold prices by more than 1%, putting the precious metal on course for its first decline in seven trading sessions.

The New Zealand dollar bounced against the greenback after the nation’s central bank skipped a chance to cut interest rates at a policy meeting.

Traders still expect the Fed, the Reserve Bank of New Zealand, and other central banks to cut rates in coming months as the outlook for global growth dims, which will be a major driver of currency moves in coming months.

“The Fed is still likely to cut rates,” said Shinichiro Kadota, foreign exchange strategist at Barclays.

“How much of a cut will depend on the economic data and the Group of 20 meeting. I would not expect this rally in the dollar to extend much further.”

The dollar index against a basket of currencies stood at 96.289 on Wednesday, just above a three-month low of 95.843 touched on Tuesday.

The U.S. currency rose 0.25% to 107.44 yen, rebounding from 106.77 yen, its lowest level since its flash crash in early January.

Interest rate futures are now pricing in a 33% chance of a 50 basis point cut at the Fed’s July meeting, down from 38% earlier, while a cut of at least 25 basis points is seen as certain, according to the CME Group’s FedWatch Tool.

Traders are also eyeing a meeting between Trump and Chinese President Xi Jinping at a G20 summit over the weekend, but expectations are low for a breakthrough to end a year-long trade war between the world’s two largest economies.

Despite the slight moderation in Fed cut hopes, benchmark 10-year U.S. Treasury yields slipped below 2% due to worries about a prolonged U.S.-Chinatrade war.

“The dollar’s upside is heavy, particularly against the yen,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities.

“Powell is worried about curbing excess expectations, but Treasury yields are clearly heading lower and U.S. economic data are not looking great. A rate cut in July is a done deal.”

The New Zealand dollar rose 0.21% to $0.6552 after the RBNZ’s decision to hold its cash rate at 1.5% as expected.

Still, the tone was unmistakably dovish with minutes showing the policy-making committee discussed whether to ease at the meeting and agreed a move would likely be needed in time.

Markets imply around a 63% chance of a reduction to 1.25% at the RBNZ’s next meeting on August 7, and are wagering heavily on 1% by year end.

Gold fell 1.0% $1,408.60 per ounce, retreating from a six-year high of $1,438.63.

The British pound slipped 0.23% to $1.2670 before the Bank of England publishes its closely-watched quarterly inflation forecasts later on Wednesday.

The BoE has said rates would need to rise in a gradual fashion as long as Britain avoids a no-deal exit from the European Union.

However, sterling remains dogged by concerns that eurosceptic Boris Johnson will become Britain’s next prime minister, increasing the chance of a no-deal Brexit.

The euro was little changed at $1.1356, pulling back slightly from a three-month high of $1.1412.

The euro advanced to a three-month high against the dollar on Monday, as bearish bets on the U.S. currency remained solid after the Federal Reservesignaled last week it could soon cut interest rates.

The euro stretched its rally last week, when it added 1.4%, and rose about 0.15% to $1.1386 in early Asian trade, its highest since March 22. It last traded at $1.1381.

The dollar index versus a basket of six major currencies was a shade lower at 96.107, having struck 96.093 on Friday, its lowest since March 21, after the Fed last week opened the door for a potential rate cut as early as next month.

That weighed on the dollar and in turn reinvigorated its counterparts such as the euro, which has had troubles of its own  including Italy’s debt problem and the possibility of the European Central Bank having to ease policy.

“It is true that the ECB may have to ease policy especially with the Fed having shifted to an easing bias,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“But the ECB already employs a negative interest rate policy and does not have much further room to ease even if they wanted to, unlike the Fed. It is factors like these which have seemingly supported the euro.”

The dollar nudged up 0.1% to 107.395 yen after retreating to a near six-month low of 107.045 on Friday.

The U.S. currency was pressured further against the yen, which often serves as a safe haven in times of political angst, as tensions grew between Iran and the United States.

But it is difficult to see the greenback fall beyond 105 yen as a sustained flight from dollar-assets was unlikely, said Koji Fukaya, director at FPG Securities in Tokyo.

“For example the S&P 500 reached a record high thanks to prospective rate cuts. Stronger investor risk appetite slows any flight-to-quality into the yen,” Fukaya said.

In focus was whether Washington and Beijing can resolve their trade dispute at a summit in Japan this week of leaders from the Group of 20 leading world economies.

Both China and the United States should make compromises in trade talks, Chinese Vice Commerce Minister Wang Shouwen said on Monday.

The Australian dollar rose to a 12-day high of $0.6961 after Reserve Bank of Australia (RBA) Governor Philip Lowe said it would be legitimate to question the effectiveness of global monetary policy easing to boost economic growth.

The comments were perceived to be slightly less dovish as just last week Lowe said a recent cut in Australia interest rates to an all-time low of 1.25% would not be enough to revive economic growth.

The Aussie was already on a steady footing after rebounding from a five-month low of $0.6832 last week when the Fed’s tilt towards monetary easing helped offset bearishness from the probability of policy easing in countries including Australia and New Zealand.

The New Zealand dollar traded near a 10-day peak of $0.6605 scaled on Friday although the Reserve Bank of New Zealand (RBNZ) is expected to echo the dovish sentiments of other central banks when it holds a policy meeting on Wednesday.

The dollar was headed for a big weekly loss on Friday, touching a five-month low against the Japanese yen and struggling versus the euro after a dovish shift by the Federal Reserve.

In joining the European Central Bank by opening the door to interest rate cuts and more stimulus to counter an economic slowdown, the Fed sent the dollar to its biggest two-day loss of 2019.

Forex markets were much quieter on Friday, however, as traders took stock.

The focus now shifts to whether the United States and China can resolve their trade row at a Group of 20 leaders summit in Japan next week.

Presidents Xi Jinping and Donald Trump are due to meet on the sidelines of the G20 next weekend, but analysts say chances of a decisive breakthrough are low.

An escalating dispute between the United States and Iran after the downing of an unmanned U.S. surveillance drone also supported buying of the safe-haven yen, which hit a five-month high on Friday.

“The yen is continuing to benefit from the dovish shift in Fed and ECB policy alongside other low-yielding currencies such as the Swiss franc,” said MUFG analysts in a note.

The yen rose as high as 107.04 yen per dollar before settling at 107.3.

Money markets are pricing in three Fed rate cuts before year-end, starting with the next meeting in July, and tipping as many as five cuts through mid-2020.

That could undermine the dollar but some analysts also say that given it still yields more than other major currencies it is likely to remain in demand.

The dollar index, which measures the greenback against a basket of currencies, fell 0.1% to 96.495, its lowest for two weeks.

The euro hit a new weekly high of $1.1319, up 0.2% on the day, after French and German business activity strengthened more than expected in June, according to surveys.

“The dollar’s upside is capped, because we are already looking past the Fed’s July meeting for more rate cuts,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities.

“Central banks are in a competition to ease policy, so it’s a question of which currency to sell. There are some hopes surrounding G20, but we’ve been here before only to be disappointed.”

Sterling changed hands at $1.2699. The Bank of England on Thursday struck a less dovish tone than other central banks but cut its second-quarter growth forecast, capping a pound rally.

The dollar traded near two-week highs against the euro on Wednesday as investors waited to see whether the U.S. Federal Reserve would sound as dovish on future interest rate cuts and stimulus as the European Central Bank.

ECB President Mario Draghi’s about-face on easing on Tuesday fuelled talk of a worldwide wave of central bank stimulus, firing up stocks, bonds and commodities and weakening the euro, although currency moves were relatively small.

The Fed is scheduled to release its monetary policy statement at 1800 GMT, followed by a press conference by Chairman Jerome Powell. Futures markets have almost fully priced in a quarter-point easing in July and imply more than 60 basis points of cuts by Christmas.

The euro gained 0.1% to $1.1203, having fallen to a two-week low of $1.1181 on Tuesday after Draghi spoke and German government bond yields dropped to new record lows.

The dollar, measured against other currencies, fell 0.1% to 97.561 from Tuesday’s two-week high.

The dollar had been under pressure in late May as global trade tensions and economic weakness led investors to bet on Fed rate cuts. Expectations other central banks will follow suit have since helped the dollar recover.

“Relative to what the market is priced for, it’s hard to see how they (the Fed) will surprise the market on the dovish side. The risks are the other way,” said Adam Cole, a currencies strategist at RBC Capital Markets.

Cole said he believed the market was “underplaying” the spread between Europe and the United States, and even if the Fed cuts, investors will still be paying to hold euros while earning a relatively good yield with dollars.

That should support the U.S. currency, with Cole predicting a low for the euro of $1.10 this year.

U.S. President Donald Trump said on Tuesday he would have an extended meeting with Chinese President Xi Jinping at the Group of 20 summit later this month, raising hopes they can ease tensions in a trade dispute that has damaged the world economy.

UBS wealth management said that the dollar could rise against the yen if the Fed was less dovish than expected or the G-20 summit ends with a temporary U.S.-China trade war truce

“A bounce toward 110 would make adding short USDJPY positions attractive,” UBS said. “We expect USDJPY to grind lower as US growth slows and as US-China trade tensions persist.”

The yen stood little changed at 108.41 yen per dollar .

China’s yuan pulled back from Tuesday’s three-week high following reports that Xi and Trump would meet. The offshore yuan last traded at 6.9070, down 0.1% on the day.

Sterling rose to $1.2575 after May inflation rose in line with expectations, although concern that eurosceptic Boris Johnson would become Britain’s next prime minister is likely to cap any rally.

Bond futures imply a 66% probability the Reserve Bank of Australia will follow up its recent quarter-point easing with another in July. If not, a reduction to 1% is considered certain by August.

Markets were also raising bets of a rate cut by the Reserve Bank of New Zealand.

“Rising interest rate cut expectations thanks to weak data has fuelled weakness in the Australian dollar with trade tensions also weighing on demand,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.

The weakness in the Australian dollar has pushed investors to unwind some of their carry trades, where speculators borrow in a low-yielding currency such as the Swiss franc and invest in relatively higher-yielding ones such as the Australian dollars.

The Australian dollar/Swiss franc cross, a barometer for such speculative bets, has fallen nearly 6% in eight weeks, indicating hedge funds were losing money on such bets.

Elsewhere, the U.S. dollar gained on Friday and was on track for its biggest weekly rise in three weeks, before U.S. retail sales data. Sales growth was to reach 0.3% in May compared with 0.1% in April.

With investors betting on U.S. rate cuts in the coming weeks, investors are worried that stronger sales might undermine some of those bets and push the dollar higher.

Bond markets are pricing in a 28% chance of a rate cut next week, followed by a sure bet at the end of July.

Against a basket of its rivals, the dollar rose 0.1% to a one-week high of 97.09

The Australian dollar was the big loser on Thursday after mixed employment data raised expectations for an interest rate cut, while investor nerves about suspected attacks on two oil tankers in the Gulf of Oman supported demand for the Japanese yen.

The yen also rallied on Thursday as fading hopes for a U.S.-China trade deal at this month’s G20 meeting, as well as massive street protests in Hong Kong, drove investors into safe-haven assets, although stock markets in Europe managed to claw higher.

Reports of the attacks on two tankers, which sent crude oil prices soaring, added to the already-heightened tensions between Iran and the United States.

The yen rose to as high as 108.16 yen per dollar before settling at 108.44, up 0.1% on the day.

“You still have a lot of uncertainty when it comes to geopolitics,” said Manuel Oliveri, analyst at Credit Agricole.

“The focus is shifting to the G20 meeting. Risk sentiment remains relatively unstable,” he added, although cautioning that expectations for interest rate cuts by the U.S. Federal Reserve were keeping investor confidence from weakening further.

The Australian dollar, viewed as a barometer for global investor sentiment, fell 0.3% to $0.6901, a two-week low. Against the yen the Aussie tumbled half a percent to its weakest since January before hitting 74.89, down 0.4%.

Mixed jobs data in Australia were taken as a green light for an early rate cut. Analysts noted that markets were pricing in a 65% chance of a rate cut in July, and a more than 80% chance of one by August and September. Australian government bond yields slid to record lows.

The dollar edged lower, the index hitting 96.965 after softer-than-expected inflation numbers published on Wednesday. The greenback hit its lowest since late March on Monday as expectations grow that the Fed will soon cut rates.

The euro was little changed at $1.1287.

“In our view, the Fed has blinked and rate cuts are coming from July. At the same time, the ECB (European Central Bank) lacks answers on what to do about the risk of a de-anchoring of inflation expectations. The Fed-ECB monetary policy divergence should pave the way for a higher EUR/USD over the coming six months,” Danske Bank analysts said in a note.

The Swiss franc rose 0.2% to 1.1215 francs per euro after the Swiss National Bank said it could further relax its ultra-loose monetary policy but did not sound as concerned about the economic outlook as some analysts had expected.

Sterling slipped, extending Wednesday’s losses after British lawmakers defeated an attempt led by the opposition Labour Party to try to block a no-deal Brexit.

The pound was last down 0.1% at $1.2675 and 89.06 pence per euro.

The dollar hovered near an 11-week low against its peers on Wednesday, weighed by expectations the U.S. Federal Reserve could cut interest rates some time in the next few months.

The dollar index versus a basket of six major currencies was effectively flat at 96.707, trading just above the 96.459 level it hit on Monday, its lowest since late March.

The index has been under pressure following a sharp decline in long-term U.S. Treasury yields, which fell to near two-year lows on Friday after a soft U.S. jobs report raised expectations for an interest rate cut by the Fed.

Investor focus is now on the Fed’s next policy meeting on June 18-19 and what kind of signals the central bank could offer on the direction of monetary policy.

“The market has priced in a rate cut by the Fed to a significant degree,” said Shinichiro Kadota, senior strategist at Barclays in Tokyo.

“So the market is waiting for next week’s Fed meeting as a chance to see by how much and for how long it is ready to ease policy.”

Expectations for a central bank rate cut this year rose last week after a number of Fed officials, including Chairman Jerome Powell, hinted they were open to easing monetary policy.

According to the CME Group’s FedWatch Tool, interest rate futures traders are pricing in a 17% chance of easing at the Fed’s meeting next week and an 80% chance at the following meeting in July.

The euro was steady at $1.1330 and in close reach of a three-month peak of $1.1348 scaled on Friday.

The single currency was little affected by U.S. President Donald Trump’saccusation that Europe was devaluing the euro, which has gained roughly 1.4% against the dollar so far in June.

Trump tweeted on Tuesday that the euro and other currencies are devalued against the dollar and put the United States at a big disadvantage.

“For the first time in a while the U.S. president decided to criticise the currency policies of other countries,” said Makoto Noji, chief currency and foreign bond strategist at SMBC Nikko Securities.

“But his criticism lacked the strength of his earlier statements on currencies. When he took office, Trump had stressed that a weaker dollar was necessary to create U.S. employment.”

The dollar was little changed at 108.480 yen. The greenback has crawled off a five-month low of 107.810 plumbed a week ago when risk aversion in the broader markets heightened demand for the safe-haven yen.

China’s yuan was steady in offshore trade at 6.9250 per dollar after bouncing back the previous day from seven-month lows.

The yuan had risen on Tuesday after China’s central bank said it would sell yuan-denominated bills in Hong Kong in late June, in a move that some market analysts believed was aimed at stemming a sharp decline in the yuan.

An escalation in the U.S.-China trade conflict has weighed heavily on the yuan this year.

The dollar steadied above a recent two-and-a-half-month low on Tuesday as investors focused on a Group of 20 summit later this month where Beijing and Washington might make some progress on trade talks.

A 3.5% rally in the dollar against its rivals in the first five months of 2019 has come to a halt in recent weeks as dovish comments from Federal Reserve officials and weak economic data bolster rate-cut expectations.

Though markets are only pricing in about a 20% chance of a rate cut in June, they are fully pricing in a cut by July, and more than three rate hikes by mid-2020. The next policy meeting is scheduled for next week.

Rising rate cut bets have also prompted investors to increase holdings of other currencies, with latest positioning data showing the biggest weekly rise in euro positions in nine months.

With the dollar having weakened 1% this month against a basket of other major currencies to hit a late-March low of 96.46 last week, investors are firmly focused on a G20 meeting in Osaka, Japan, on June 28-29.

The dollar was broadly steady at 96.80 on Tuesday.

“That meeting is now becoming the centerpiece for financial markets in the coming days,” said Simon Derrick, a currency strategist at BNY Mellon in London.

U.S. President Donald Trump said on Monday he was ready to impose more tariffs if talks at the summit with China’s president, Xi Jinping, make no progress.

Trump said last week he would decide after the meeting of the leaders of the world’s largest economies whether to carry out a threat to impose tariffs on at least $300 billion in Chinese goods.

Away from the upcoming G20 summit, investors have become more cautious of betting on further dollar weakness.

“Bets of U.S. rate cuts have been rising quickly in recent days and we think the pricing has become too aggressive so the dollar’s downside is limited,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

The euro was a touch firmer at $1.1318 though a survey showed investor morale in the euro zone deteriorated sharply in June, falling well short of expectations.

Elsewhere, the pound was lower as a leadership contest for the ruling Conservative Party got underway this week. The euro edged to a five-month high against the pound to 89.32 pence before British employment data.

Recent data, particularly manufacturing figures, have been weak, fueling expectations that the next move from the Bank of England will be a rate cut.

Policymakers, however, have adopted an unexpectedly hawkish stance.

The Bank of England will probably need to raise interest rates sooner than financial markets expect, policymaker Michael Saunders said on Monday.

The Mexican peso jumped against the dollar on Monday after the United Statesand Mexico struck a migration deal late last week to avert a tariff war, providing some much-needed relief to fragile market sentiment.

Over the past year, trade disputes between the United States and its trading partners, including a long-running conflict with China, have slowed global growth and unsettled financial markets.

China’s exports unexpectedly returned to growth in May despite higher U.S. tariffs, data showed on Monday, but many suspected the rise was due to firms front-loading shipments to avoid higher U.S. tariffs. Fears of a longer U.S.-China trade war continued to persist.

The figures showed imports in May dropped 8.5% from a year earlier, a much worse than expected outcome that signaled weak domestic consumption and weighed on the yuan.

The Mexican peso rose 2% to 19.2275 pesos per dollar after trading resumed for the first time after Mexico agreed on Friday to expand along the entire border a program that sends migrants seeking asylum in the United States to Mexico.

U.S. President Donald Trump had threatened to impose 5% import tariffs on all Mexican goods starting on Monday if Mexico did not commit to do more to tighten its borders.

“We all knew that Donald Trump was unpredictable, but this was taking it to a whole new level,” said Chris Weston, Melbourne-based head of research at foreign exchange brokerage Pepperstone.

“This was political, it was social. It meant that financial markets had to wear a higher risk premium.”

Futures for the S&P 500 were last up 0.2%. Benchmark 10-year Treasury yields jumped back 3 basis points to 2.114% after hitting a 21-month low of 2.053% on Friday after soft U.S. jobs data.

Against the safe-haven yen, the dollar gained 0.25% to 108.475 yen.

The yen gained in late May on the deteriorating global trade outlook as the currency tends to benefit during geopolitical or financial stress as Japan is the world’s biggest creditor nation.

Bart Wakabayashi, Tokyo branch manager at State Street Bank, said the lift to sentiment from the U.S.-Mexico deal would “probably spill over to optimism with China and hopefully some progress there.”

“We’ve had trade talks with the EU, with Japan. Hopefully these will start to turn to the positive narrative which should see further dollar weakness in the yen,” he said.

Still, the dollar’s gains were checked by rising expectations the Federal Reservewill cut interest rates during the second half of the year.

Those views were bolstered on Friday when data showed nonfarm payrolls increased by 75,000 jobs last month, much smaller than the 185,000 additions estimated by economists in a Reuters poll, suggesting the loss of momentum in economic activity was spreading to the labor market.

Fed funds rate futures are still pricing in more than two 25-basis-point rate hikes by the end of this year even after their retreat early on Monday after the U.S.-Mexico migration deal.

“The market is saying it is not a question of if, it is a question of when, and to what extent, we’re going to get a rate cut for this year,” said Pepperstone’s Weston.

Against a basket of six peers, the dollar index rose 0.2% to 96.750, recovering slightly after ending with a 1.2% loss last week, its worst weekly performance since the week of Feb. 16, 2018.

Group of 20 finance leaders said on Sunday that trade and geopolitical tensions have “intensified”, raising risks to improving global growth, but they stopped short of calling for a resolution of the deepening U.S.-China trade conflict.

Elsewhere, the Chinese yuan was last down about 0.3% at 6.9336 per dollar in onshore trade after briefly brushing its lowest since late November in the wake of the weak import data.

The Australian dollar slipped 0.4% to $0.6973, giving up some of last week’s gains, when it rose 0.9%.

The euro dipped nearly 0.2% to $1.1313, retreating from an 11-week high of $1.1348 touched on Friday.