FX Rate News

The dollar was poised for its first back-to-back weekly gains since May on Friday as jitters in equity markets had investors sticking to safer assets, while sterling tracked toward its worst week since March on fears of a messy hard Brexit.

After a volatile New York session, the greenback was broadly steady in Asia. Marginal moves higher in the Aussie, kiwi and euro were all too small to dent a bounce in the dollar that came with Thursday’s Wall Street selloff.

“It’s exhaustion today,” said National Australia Bank senior currency strategist Rodrigo Catril in Sydney, as traders frazzled by a bumpy week look ahead at risks ranging from next week’s Federal Reserve meeting to U.S. politics and Brexit.

“We think that in this sort of environment of uncertainty its difficult to see the equity market continue to perform. A period of turbulence seems more likely, and in that scenario the dollar tends to find support, or at least struggles to weaken.”

Markets are also looking to U.S. consumer price data due at 1230 GMT for an insight into the recovery and to the challenge facing the Federal Reserve as it looks to lift inflation.

Against a basket of currencies, the dollar was a touch lower midway through Asian trade, but ahead by about half a percent for the week. It has now recouped about 1.7% from a 28-month hit low early in September.

The yen was broadly steady for the week at 106.14 per dollar. Goldman Sachs analysts said pension fund flows out of Japan had offset a safety bid as U.S. stocks fell.

The Australian dollar rose 0.3% to head toward a flat finish for the week at $0.7275, while the New Zealand dollar edged 0.1% higher to $0.6660. Bond inflows have not been enough to prevent a nearly 1% dip in the kiwi this week.

“The dollar looks delicately poised having bounced from recent lows,” ANZ analysts said in a note.

“The Fed still has a mountain to climb if it wants to drive inflation higher, and the September meeting may provide some insight on how exactly it plans to do that.”
Wild ride

Asia’s steady session followed wild trade in the wake of Thursday’s European Central Bank meeting and a falling out between Britain and Europe over Brexit that hammered the pound.

The euro whipsawed, first zooming 1% higher to $1.1917 after European Central Bank President Christine Lagarde insisted the bank does not target the exchange rate, before falling back to around $1.1830 as a U.S. equities slump lifted the dollar.

The Nasdaq dropped 2% overnight and has fallen 9.6% from a record high made on September 2.

Sterling, meanwhile, just fell.

The European Union told Britain on Thursday it should urgently scrap a plan to break their divorce treaty.

But Britain has refused to budge and pressed ahead with a draft law that could sink four years of Brexit talks by fiddling with agreed-upon arrangements for Northern Ireland.

The outcry from Europe sent the pound to a six-week low of $1.2773 and it mostly stayed there on Friday, last trading at $1.2812. It has lost 3.5% on the dollar this week and about as much against the euro to sit at 92.32 pence.

“The selling was relentless,” said Chris Weston, head of research at brokerage Pepperstone in Melbourne.

“Clearly the pound is wearing a greater political premium,” he said, adding that near-term volatility gauges had spiked dramatically.

In emerging markets, the Indonesian rupiah dropped nearly 0.7% to a four-month low of 14,920 per dollar as a planned return to coronavirus social restrictions in Jakarta unnerves investors.

The euro edged higher on Thursday as traders braced for a European Central Bank meeting to gauge policymakers’ views on the common currency’s recent appreciation and its impact on inflation.

Sterling steadied above a six-week low but could lose more ground due to growing concern that Britain and the European Union will fail to agree a trade deal.

While markets expect the ECB to keep policy steady, investors will closely watch President Christine Lagarde’s comments on how the euro’s rise to a two-year high this month affects the outlook for inflation and economic growth.

“The ECB is this week’s biggest event by far and there is a lot at stake,” said Masaru Ishibashi, joint general manager of trading at Sumitomo Mitsui Banking Corp.

“Most recently, the ECB downplayed inflation, but I want to see how Lagarde will approach this in her press conference. This will determine which way the euro goes.”

The euro bought $1.1821, holding onto a 0.3% gain from the previous session.

The British pound traded at $1.2993, recovering slightly from a dip to a six-week low of $1.2839 on Wednesday.

The pound fell to 90.98 pence per euro, approaching a six-week low.

Sentiment for cable has taken a hit after Britain unveiled draft legislation that analysts say raises the possibility of it exiting the EU single market in four months’ time with no trade agreement in place.

The dollar held steady against the safe-harbor Swiss franc at 0.9116 and was little changed at 106.11 yen.

The euro got a boost on Wednesday after Bloomberg News reported that ECB officials are growing more confident in the bloc’s economic outlook.

However, traders may be reluctant to buy the common currency further before the ECB meeting due to earlier media reports that officials are growing uncomfortable with the euro’s almost 6% appreciation against the dollar from its June low.

The ECB’s views are also in the spotlight after euro-zone consumer prices turned negative in August for the first time since 2016, and the U.S. Federal Reserve switched to focusing on average inflation.

“It’s possible that the ECB could try to out-dove the Fed if the euro appreciation goes too far, but whether that will be done via shifting to average inflation targeting or other means is hard to say,” Aidan Yao, senior emerging Asia economist at AXA Investment Managers in Hong Kong, told the Reuters Global Markets Forum.

With no major economic data scheduled during Asian trading, market moves could be subdued as investors wait for potential ECB catalysts.

Traders in the dollar are closely watching global equities because a rebound in U.S. tech shares from a rapid sell-off boosted Asian stocks, suggesting an improvement in risk appetite.

The dollar index against a basket of six major currencies was steady at 93.172.

Elsewhere, the Australian dollar fell to $0.7268 amid concerns abound worsening diplomatic ties with China over the treatment of the two countries’ journalists.

Investors are also nervously monitoring an outbreak of coronavirus infections in the state of Victoria.

Across the Tasman Sea, the New Zealand dollar eased slightly to $0.6681.

The dollar held steady on Tuesday as investors weighed whether an accommodative turn from the European Central Bank later this week could hit the euro, while the pound nursed losses due to Brexit uncertainty.

A day after thin holiday trade, the greenback was slightly stronger against a basket of currencies at 93.128 and firmed marginally against the euro at $1.1809.

Moves in the Asian day were modest, but had the dollar back under gentle pressure as risk appetite appeared to return to equity markets.

The Australian dollar stood at $0.7276 and the New Zealand dollar was little changed at $0.6685, having hit lows overnight following a Sunday statement from the central bank which again raised the prospect of negative rates.

The main focus this week is on the European Central Bank’s policy decision on Thursday.

Most analysts don’t expect a change in the central bank’s policy stance but are looking to the message on its inflation forecasts and whether it seems concerned by the euro’s strength.

The meeting comes after the single currency marked a two-year high just above $1.20 at the beginning of the month, until comments about its level from ECB chief economist Philip Lane knocked it lower.

“The ECB could raise more concerns over a further appreciation in the euro and make some downward revisions to its inflation projections,” said Commonwealth Bank of Australia currency analyst Kim Mundy, which would flag easier policy.

“In our view, the dollar can lift further over the remainder of the week because of the possibility the ECB takes a sharper dovish turn.”

Elsewhere, the dollar traded firmly against the Japanese yen amid talk of a snap election – something that Yoshihide Suga, frontrunner to succeed Shinzo Abe in next week’s leadership ballot – signaled in a newspaper interview.

Analysts say many currency market participants no longer consider the leadership race as a catalyst, as the next leader is likely to follow Abe’s policy path.

“Around eight years ago (when Abe took over), the yen was stronger at around 70 per dollar. But with the current dollar/yen level, there’s nothing much the successor can do currency-wise,” said Daisuke Karakama, chief market strategist at Mizuho Bank.

“The stronger local equity market should be more of a concern instead,” he said.

The yen last changed hands at 106.29 per dollar.

The British pound, meanwhile, was the laggard amid a fresh crisis in EU-UK trade negotiations.

A Financial Times report suggesting Britain might legislate to override its Brexit withdrawal agreement prompted the EU to warn there would be no deal if that happened, raising the prospect again of a hard Brexit.

New talks are due to begin in London later on Tuesday.

The pound edged 0.2% lower to $1.3146, after shedding 0.8% overnight, and sat a fraction above a two-week low against the euro at 89.76 pence.

Some traders also sold sterling against the yen, last traded at 139.63, hovering near a two-week low of 139.58 it hit in the previous session.

“The key question for markets is whether the remarks are still mostly brinkmanship as negotiations near the finish line,” said NAB economics director Tapas Strickland. “The mild market reaction suggests markets think so and still sniff a deal.”

Meanwhile, data in Australia showed employment eased over the month to August 22, while last month’s business confidence gained but remained fragile.

Japan’s economy shrank an annualized 28.1% in April-June, worse than the initial estimate of a 27.8% contraction, revised data from the Cabinet Office showed on Tuesday.

The dollar steadied against major currencies on Friday as traders awaited key U.S. jobs data that may cast doubt on the strength of economic recovery from the coronavirus outbreak.

The Australian dollar clawed back early losses and stabilized after the country’s retail sales accelerated in July, easing concern about the economy.

The greenback has managed to halt its recent slide, but analysts warn sentiment remains weak due to concern about the strength of U.S. economic growth and speculation that the Federal Reserve will keep rates low for a very long time.

“The dollar has rebounded against the euro and could continue to rise a little further,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.

“However, my main scenario is for the dollar to fall, for stocks to rise and for yields to fall because the Fed is expected to stick with low interest rates.”

Against the euro, the dollar stood at $1.1851 in Asia on Friday, extending a pullback from a two-year low hit on Tuesday.

The British pound bought $1.3285, retreating from its highest level in almost a year due to a lack of progress in trade negotiations between Britain and the European Union.

The greenback was quoted at 0.9096 Swiss franc.

Against the yen, the dollar traded at 106.18.

Data due later on Friday is expected to show U.S. non-farm payrolls grew by 1.4 million in August, which would be slower than the 1.763 million jobs created in the previous month.

There are growing signs the labor market recovery from the depths of the pandemic is faltering, with financial support from the government virtually depleted.

The U.S. central bank last week overhauled its policy framework to focus more on addressing shortfalls in employment and less on inflation, which would allow it to keep rates lower for longer periods, which is a negative for the dollar.

Chicago Fed President Charles Evans said on Thursday the bank could promise to keep interest rates pinned near zero until inflation reaches 2.5%, well above current low levels and modestly above the inflation target of 2%.

The dollar index against a basket of six major currencies was little changed in Asia on Friday at 92.759.

The dollar’s downtrend will continue for at least another three months due to the outlook for the Fed’s monetary policy, a Reuters poll of analysts showed on Friday.

The Antipodean currencies initially fell slightly, tracking the broader loss of investor confidence as a sell-off in U.S. tech shares hit Asian stocks and a closely-watched measure of market volatility hit a 10-week high.

However, the looming U.S. jobs data brought investors back to a more measured posture.

The Australian dollar steadied at $0.7275, supported after local retail sales accelerated in July.

Across the Tasman Sea, the New Zealand dollar erased losses to trade to $0.6712.

The dollar bounced off two-year lows on Wednesday as U.S. data pointed to a firm manufacturing activity, while the euro retreated from its highest levels since 2018 on profit-taking.

Economic data published on Tuesday showed U.S. manufacturing activity accelerated to a nearly two-year high in August amid a surge in new orders, with the reading from the Institute for Supply Management at its highest level since November 2018.

The U.S. data followed similarly upbeat Chinese and European manufacturing indicators.

Analysts said that an increase in pent-up demand has contributed to the rise in the greenback.

“In hindsight, it was a strong data,” said Rikiya Takebe, senior strategist at Okasan Online Securities.

“But when you look closely into the eighteen industries, not all of them registered growth in employment… there wasn’t an improvement in employment overall,” he said.

The dollar index inched up 0.5% at 92.80, having hit its lowest since April 2018 of 91.737.

Separate data from the Australian Bureau of Statistics showed Australia suffered its worst economic fall in quarterly domestic product on record last quarter as the coronavirus pushed the country into recession.

Following the data announcement, the Australian dollar fell 0.5% to $0.7348 before retracing some losses at $0.73560.

The greenback has been declining since last week, down about 1%, after the Federal Reserve announced it would focus more on average inflation and higher employment. With the Fed’s shift in policy having leeway to keep U.S. interest rates lower for longer, it has encouraged traders to sell the currency.

That view was reinforced on Tuesday as Fed Governor Lael Brainard said the central bank would need to roll out more stimulus to help the economy overcome the coronavirus and fulfill the Fed’s new pledge.

U.S. Treasury yields fell following the speech as additional stimulus would likely involve more aggressive bond-buying.

The euro benefited from the initial dollar sell-off, as it rose high as $1.2014 on Tuesday, its highest since May 2018.

The common currency later reversed those gains to sit at $1.19085.

“After hitting the 1.2 level, the euro fell due to the crowded long posing,” said Makoto Noji, chief FX strategist at SMBC Nikko.

“For a while, the market talked about how the Fed’s new policy weakened the dollar, but the flow of traders buying back the dollar will probably become strong for a week or two,” he said.

Against the Japanese yen, the dollar was little changed at 106.07 yen.

Japan’s Liberal Diplomatic Party formally decided to hold election of September 14, sources told Reuters, but analysts say the market has already priced in the risk.

“The sell-off that followed after (Shinzo Abe’s) surprise resignation announcement is over, and with the market assuming (Chief Cabinet Secretary Yoshihide) Suga will win the election, there isn’t much factors left to consider,” said Mitsuo Imaizumi, chief FX strategist at Daiwa Securities.

Also supporting a rebound in the greenback, White House chief of staff Mark Meadows said Senate Republicans are likely to bring up a targeted Covid-19 relief bill next week.

However, U.S. House Speaker Nancy Pelosi said in a statement after a phone call with Treasury Secretary Steven Mnuchin on Tuesday that “serious differences” remain between Democrats and the White House over coronavirus relief legislation.

Among antipodean currencies, the New Zealand dollar added 0.3% at $0.6780 after the Reserve bank of New Zealand governor Adrian Orr said the central bank’s actions have been effective in broadly lowering interest rates.

Elsewhere in the market, Sterling traded at 1.33, just below last year’s high that followed the 2019 election of 1.3516.

The Chinese yuan advanced 0.15% to 6.83.

The dollar bounced off two-year lows on Wednesday as U.S. data pointed to a firm manufacturing activity, while the euro retreated from its highest levels since 2018 on profit-taking.

Economic data published on Tuesday showed U.S. manufacturing activity accelerated to a nearly two-year high in August amid a surge in new orders, with the reading from the Institute for Supply Management at its highest level since November 2018.

The U.S. data followed similarly upbeat Chinese and European manufacturing indicators.

Analysts said that an increase in pent-up demand has contributed to the rise in the greenback.

“In hindsight, it was a strong data,” said Rikiya Takebe, senior strategist at Okasan Online Securities.

“But when you look closely into the eighteen industries, not all of them registered growth in employment… there wasn’t an improvement in employment overall,” he said.

The dollar index inched up 0.16% at 92.390, having hit its lowest since April 2018 of 91.737.

Separate data from the Australian Bureau of Statistics showed Australia suffered its worst economic fall in quarterly domestic product on record last quarter as the coronavirus pushed the country into recession.

Following the data announcement, the Australian dollar fell 0.5% to $0.7348 before retracing some losses at $0.73560.

The greenback has been declining since last week, down about 1%, after the Federal Reserve announced it would focus more on average inflation and higher employment. With the Fed’s shift in policy having leeway to keep U.S. interest rates lower for longer, it has encouraged traders to sell the currency.

That view was reinforced on Tuesday as Fed Governor Lael Brainard said the central bank would need to roll out more stimulus to help the economy overcome the coronavirus and fulfill the Fed’s new pledge.

U.S. Treasury yields fell following the speech as additional stimulus would likely involve more aggressive bond-buying.

The euro benefited from the initial dollar sell-off, as it rose high as $1.2014 on Tuesday, its highest since May 2018.

The common currency later reversed those gains to sit at $1.19085.

“After hitting the 1.2 level, the euro fell due to the crowded long posing,” said Makoto Noji, chief FX strategist at SMBC Nikko.

“For a while, the market talked about how the Fed’s new policy weakened the dollar, but the flow of traders buying back the dollar will probably become strong for a week or two,” he said.

Against the Japanese yen, the dollar was little changed at 106.075 yen.

Japan’s Liberal Diplomatic Party formally decided to hold election of September 14, sources told Reuters, but analysts say the market has already priced in the risk.

“The sell-off that followed after (Shinzo Abe’s) surprise resignation announcement is over, and with the market assuming (Chief Cabinet Secretary Yoshihide) Suga will win the election, there isn’t much factors left to consider,” said Mitsuo Imaizumi, chief FX strategist at Daiwa Securities.

Also supporting a rebound in the greenback, White House chief of staff Mark Meadows said Senate Republicans are likely to bring up a targeted Covid-19 relief bill next week.

However, U.S. House Speaker Nancy Pelosi said in a statement after a phone call with Treasury Secretary Steven Mnuchin on Tuesday that “serious differences” remain between Democrats and the White House over coronavirus relief legislation.

Among antipodean currencies, the New Zealand dollar added 0.3% at $0.6780 after the Reserve bank of New Zealand governor Adrian Orr said the central bank’s actions have been effective in broadly lowering interest rates.

Elsewhere in the market, Sterling traded at 1.3379, just below last year’s high that followed the 2019 election of 1.3516.

The Chinese yuan was little changed, last down 0.08% in offshore markets to 6.8305.

The dollar was set for a fourth straight month of losses on Monday after a U.S. Federal Reserve policy shift on inflation, while the euro was poised to post a fourth month of gains, taking both currencies to levels last seen in 2018.

Investors are adjusting to a speech last Thursday in which Federal Reserve Chair Jerome Powell outlined an accommodative policy change which is believed could result in inflation moving slightly higher and interest rates staying lower for longer.

“Even if U.S. central bankers are likely to be pleased about the interpretation of their measures, it is not good news for the dollar”, Commerzbank analysts commented.

“If one expects the domestic purchasing power of the dollar to be eroded more quickly (as that is what inflation is) it is difficult to assume that it will maintain its purchasing power on the FX market in the long run”, they argued.

“That is why EUR-USD is trading above 1.19, with the dollar index (DXY) trading below 92.50”, they concluded.

Against a basket of currencies the dollar rose 0.1% higher to 92.356 in early trading in Europe and is down 1.2% for the month.

If sustained that would be its worst August in five years and make for the longest run of monthly losses since the summer of 2017.

The euro  was steady at $1.1903 and on track for a 1% monthly gain, which would be its fourth straight month of increases.

With most of London’s traders off on a banking holiday, attention now turns to a handful of Federal Reserve officials due to speak through the week, beginning with Richard Clarida, as they put more flesh on the bank’s new policy framework.

Eurozone inflation data on Tuesday and U.S. payrolls on Friday will also be closely watched.

Earlier the yen  steadied on the view that Japan’s next leader will stay the course on the ‘Abenomics’ economic revival programme.

The yen eased by about 0.4% in Asia to 105.77 per dollar, having climbed as far as 104.195 on Friday in the wake of Shinzo Abe’s resignation as prime minister for health reasons.

Elsewhere trade was choppy as the boost to Asian currencies from a solid expansion in China’s service sector had begun to fade a bit.

The Australian dollar  was down 0.2% after touching a 21-month peak of $0.7381 but remained set to post a fifth straight monthly rise, its best streak in over a decade and a 34% gain from March’s trough.

The New Zealand dollar made a post-COVID high of $0.6749 but also slightly retreated 0.2% thereafter.

China’s yuan hit a 14-month peak of 6.844 to the dollar in offshore trade as investors cheer the services growth rather than fretting about a stalled rebound in manufacturing.

It later abandoned some gains and was last at 6.8556.

The dollar wallowed near its lowest level for the week on Thursday as investors looked for hints from Federal Reserve Chairman Jerome Powell that the central bank might tweak its policy framework to help push up inflation.

Powell is scheduled to address the Fed’s annual central bankers’ conference later in the day, usually held in Jackson Hole, Wyoming, but being conducted virtually this year because of the ongoing Covid-19 pandemic.

Investors are betting the U.S. central bank will introduce a new policy framework to fight persistently low inflation as early as next month.

“If the Fed turns out to be less dovish than many have been thinking, we could see a rally in the dollar,” said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.

The dollar’s index against six major currencies stood at 92.893, near the weakest level so far this week, and not far off its two-year low of 92.124 touched last week.

Since the start of the pandemic, the Federal Reserve has expanded its balance sheet by as much as about $3 trillion, far more than the European Central Bank and the Bank of Japan.

The euro changed hands at $1.1833, near its highest level so far this week, though few market players expect a clear break from its range so far this week ahead of Powell’s speech.

The dollar yen slipped to 105.97, losing steam after hitting a one-week high of 106.58 on Tuesday.

“A more aggressive Fed policy tends to weaken the dollar, and the broadcasting of this policy change has already been a factor in the recent mild yen strength,” said John Vail, chief global strategist at Nikko Asset Management.

A key focus for the yen is Prime Minister Shinzo Abe’s news conference scheduled for Friday amid rising speculation over his health.

The yen is likely to gain should Abe decide to resign, given perception that aggressive monetary easing with close co-operation between the government and the central bank, dubbed Abenomics, has been one of his trademark policies, traders said.

The British pound stood firm at $1.3211, having gained 0.9% since the start of week, while the Australian dollar was changing hands at $0.7238 up 1.1% so far this week.

The Chinese yuan was at its strong levels since January after data showed a recovery in profits at China’s industrial firms.

The offshore yuan stood at 6.8783 per dollar, its highest level since January 21.

The market appears to have shrugged off the latest signs of rising tension between the two countries.

The United States on Wednesday blacklisted 24 Chinese companies and targeted individuals it said were part of construction and military actions in the South China Sea, its first such sanctions move against Beijing over the disputed strategic waterway.