FX Rate News

The dollar stood near its lowest level in three months against a resurgent euro, and traders pared earlier bets the Federal Reserve may move soon to taper its stimulus though markets were not fully convinced that higher U.S. inflation is transient.

The dollar index, measuring the greenback against a basket of six currencies, was hovering at 90.045, a tad above a three-month low of 89.646 set on Friday.

Minutes from the Fed’s April policy meeting released last week showed a sizable minority of policymakers wanted to discuss tapering bond purchase on worries that pouring more money to an economy on the mend could stoke inflation.

Still, Fed Chairman Jerome Powell’s repeated comments that it is not yet time to discuss a reduction in quantitative monetary easing has led many investors to believe it will be months before the central bank actually tweaks policy.

“Inflation figures have been pretty strong but retail sales may be starting to slow down. And the economic outlook hinges on fiscal policy, which is still uncertain,” said Shinichiro Kadota, senior currency strategist at Barclays.

The White House said on Friday it had pared down its infrastructure bill to $1.7 trillion from $2.25 trillion, with cuts to investments in broadband and roads and bridges, but Republicans dismissed the changes as insufficient for a deal.

With investors pre-occupied with threats of accelerating inflation, U.S. PCE (personal consumption expenditures) data, due on Friday, is seen as one of the biggest tests for markets this week.

The euro traded at $1.2179, flat so far on Monday and off a three-month high of $1.2245 touched on Wednesday.

Some analysts said the currency was capped by comments from European Central Bank President Christine Lagarde on Friday that it is still too early for the bank to discuss winding down its 1.85 trillion euro emergency bond purchase scheme.

Still, the euro and other European currencies have been bolstered by rising optimism about economic reopenings in the region from coronavirus lockdowns.

A preliminary purchasing managers’ index covering the 19-country euro zone’s dominant service industry, published on Friday, bounced to 55.1 from April’s 50.5, well above expectations and its highest since June 2018.

“Although the U.S. led in economic reopenings in the first quarter, Europe is catching up and has further room for improvement, supporting the euro,” said Jun Arachi, currency strategist at Rakuten Securities.

In fact, speculators have been increasing bets against the dollar, preferring other currencies including the euro, in recent weeks.

Data from U.S. Commodity Futures Trading Commission released late on Friday showed speculators slightly increased their net short dollar positions in the latest week while raising long positions, both to their highest level since mid-March.

The British pound stood at $1.4144, off Friday’s three-month peak of $1.4233.

The yen was little moved at 108.92 per dollar, trapped between a high of 109.785 hit after a strong U.S. inflation data and a low of 108.34 in the wake of soft U.S. payrolls data, both touched earlier this month.

In the volatile cryptocurrency market, bitcoin dropped over 7% during the weekend to last trade up 2.4% at $35,528, having fallen to $31,107 at one point on Sunday.

Ether fell to a two-month low of $1,730 on Sunday, down 60% from a record peak hit just 12 days ago, and was fetching $2,178, up 3.8%.

Cryptocurrencies have tumbled after Elon Musk’s Tesla said it will stop accepting bitcoin and after China further clampdown on them.

The dollar bounced off three-month lows against European currencies on Thursday after minutes from the Federal Reserve’s last policy meeting revealed there was more talk of tapering its bond purchases than investors had expected.

In the Fed minutes, several policymakers said that a discussion about reducing the pace of asset purchases would be appropriate “at some point” if the U.S. economic recovery continues to gain momentum.

That surprised investors, given Fed Chair Jerome Powell had said right after that meeting last month that it is not time yet to begin discussing any change in policy.

“The minutes contained wordings that appear to seek to start discussion on tapering at an earlier timing than expected,” said Takafumi Yamawaki, head of fixed income research at JPMorgan.

“If the next jobs data due on June 3 is strong, markets will start bracing for the Fed making a specific mention on tapering at its next meeting in June.”

The euro changed hands at $1.2174, flat on day after having slipped 0.4% in the previous session and off a three-month high of $1.2245.

The British pound slipped to $1.4104, down 0.1% so far on Thursday and slipping further from above $1.42 earlier this week while the Swiss franc eased to 0.90415 per dollar from Tuesday’s 0.89605, its highest in nearly three months.

The dollar rose to 109.15 yen from a one-week low of 108.575 yen touched on Wednesday.

The dollar’s index bounced back from Wednesday’s three-month low to 90.209.

The dollar has been declining over the past few weeks as key Fed officials have repeatedly said they were not ready to discuss reducing stimulus, judging spikes in inflation would be transient.

“It is worth noting that the FOMC Minutes predate the latest CPI and payroll/earnings numbers, so the fears of the minority on the FOMC are likely to have become a little more acute since the April meeting,” said Tapas Strickland, director of economics, markets at RBA in Sydney.

The Fed minutes lifted U.S. bond yields a tad, with the 10-year Treasuries yield at 1.671%, compared with around 1.65% just before the release of the minutes.

Still, yields have so far remained below their March peaks, in part capped by doubts over how aggressively a dovish Fed could move towards removing stimulus.

“Towards the summer, the U.S. has fiscal issues, and it is uncertain how big fiscal spending will be. It will be difficult for the Fed to make any moves without more clarity on fiscal policy,” said Minori Uchida, chief currency analyst at MUFG Bank.

“I’d think the dollar will gain on talk of tapering in the very near-term but I doubt it will last long,” he added.

Cryptocurrencies were volatile after suffering one of their biggest losses on Wednesday in the wake of China’s decision to ban financial and payment institutions from providing digital currency services.

Bitcoin last traded up 4.5% at $38,464, having fallen to as low as $30,066 on Wednesday, which represented a whopping 54% fall from its record high hit just over a month ago.

Ether stood almost flat at $2,470 after having plunged more than 10% to as low as $2,160 earlier. On Wednesday, it fell 22.8%, its biggest daily fall since March 2020.

The U.S. dollar teetered near a six-year low against its Canadian counterpart and nursed losses against European currencies as expectations that U.S. interest rates will remain low undermined the greenback.

The minutes from the U.S. Federal Reserve’s most recent meeting due later on Wednesday are expected to confirm that policymakers think a rate hike is still in the distance.

Investors will also be scrutinizing consumer price data in Britain and Canada later in the trading day to determine how quickly major economies will be forced to rein in their accommodative monetary policy, which holds the key to the dollar’s trend in the medium term.

The dollar sank to a six-year trough against the Canadian dollar and teetered near multi-month lows versus other major peer currencies on Tuesday, as Treasury yields stalled amid renewed expectations the United States will not hike interest rates anytime soon.

Dallas Federal Reserve President Robert Kaplan on Monday reiterated that he does not expect interest rates to rise until next year, fueling a further decline in bets that inflationary pressure could force the Fed to act sooner.

This week a host of Fed policymakers are scheduled to speak, and the U.S. central bank will also release minutes from its most recent meeting, which may give indications about where monetary policy is headed.

The growing market consensus is that the Fed will tolerate what it sees as a temporary acceleration in inflation, which will keep the dollar lower against most major currencies.

“The dollar is on its knees and this seems to be a direct result of how investors feel about the U.S. inflation outlook and the Fed’s reaction,” said Valentin Marinov, head of G10 FX research at Credit Agricole.

Marinov highlighted two inflation outlook scenarios that would have different impacts on the markets – the first one being the current market expectation that price growth will soon ease.

“This will keep the Fed dovish, U.S. real yields very negative and the dollar weak … boosting commodity prices and supporting risk assets,” he said. “Under the second inflation outcome, we see a more persistent rebound of the U.S. inflation this and, potentially, early next year.”

Under Marinov’s central scenario, that could nudge the Fed towards tapering bond purchases this summer, thus boosting the outlook for U.S. Treasury yields and the dollar.

The benchmark 10-year U.S. Treasury yield stood at 1.6471%, extending a pullback from a five-week high reached last week.

The dollar traded above $1.22 to the euro, the single currency hitting its highest against the greenback since Feb. 25. The British pound rose past $1.42 for the first time since Feb. 24. Sterling has been buoyed as investors cheer the gradual lifting of strict coronavirus restrictions.

The Canadian dollar advanced to a six-year high of 1.2013 to the greenback, aided by a rise in oil prices. Up 5% against its U.S. peer year-to-date, the trader-nicknamed “loonie” is the best performing G10 currency on the year.

The dollar lost 0.3% to 108.96 yen. The Japanese currency is the worst-performing G10 currency this year, down over 5% year-to-date against the greenback amid worries about Japan’s slow pace of vaccinations and weakness in the greenback.

Some investors were already scaling back expectations for a Fed rate hike this year, and Kaplan’s comments gave traders even more incentive to sell the dollar.

The onshore yuan edged up to 6.4188 per dollar, not far from an almost three-year high reached last week.

The Australian and New Zealand dollars rose as much as half a percent each against their U.S. counterpart.

In the cryptocurrency market, bitcoin rose 3.3% to $45,023.53 but was still close to a three-month low after Tesla boss Elon Musk dented enthusiasm for the digital asset.

Rival digital currency ether rose 6.50% to $3,494, steading from a two-week low on Monday.

The U.S. dollar found pockets of support in Asia on Monday, but struggled to post gains, as investors are heavily positioned for it to fall further while the U.S. Federal Reserve holds interest rates low and U.S. trade and current account deficits grow.

Easing commodity prices and virus outbreaks in Singapore and Taiwan — where COVID-19 had been contained — helped modest dollar gains of 0.2% against the Australian and New Zealand dollars in the early part of the Asia session.

The greenback also rose 0.1% against the euro and the yen. But it remains close to testing major support levels, which if broken could see a return to a downtrend that pressed it lower through April.

A dollar bounce that followed higher-than-expected inflation data last week has also faded as traders figure the Fed will keep rates low.

The dollar last traded at $1.2134 per euro and has support around $1.2179. The dollar index is likewise, at 90.389, just above key support at 89.677 and 89.206. It bought 109.45 yen and traded at $0.7758 per Aussie and $0.7228 per kiwi.

Fed minutes, from an April meeting that predated the data surprise on inflation last week, are due on Wednesday and are the next market focus for clues on the Fed’s thinking.

“We expect the minutes … to reiterate that policymakers consider the pick up in inflation to be transitory,” said Kim Mundy, a currency strategist at the Commonwealth Bank of Australia in Sydney.

“The upshot is that we do not expect the (Fed) to consider tapering its asset purchases soon,” she said. “The dollar is expected to resume its downtrend this week after last week’s CPI-inspired boost.”

Speculators increased their bets against the dollar last week, mostly by adding to bets on the euro and to a lesser extent sterling as Britain and Europe head toward recovery.

Sterling was perched near a two-and-a-half-month high on Monday, at $1.4085, as Britain reopens its economy after a four-month COVID lockdown.

Things are travelling in the opposite direction in Asia where some early leaders in taming the pandemic are now dealing with new outbreaks. Singapore and Taiwan have both tightened curbs as cases rise and the Taiwan dollar fell to a three-week low on Monday.

The dollar crept up 0.1% against the Chinese yuan to trade at 6.4424 ahead of industrial output and retail sales figures due mid morning on Monday.

Elsewhere cryptocrrencies traded under pressure after another weekend bouncing around following tweets from Tesla boss Elon Musk. Bitcoin hit its lowest since February on Sunday after Musk hinted at Tesla possibly selling its holdings.

Bitcoin last traded 2% weaker at $45,302 and ether was 4% lower at $3,421.

The dollar held steady near week highs on Thursday after the U.S. Labor Department reported higher producer prices in April, further evidence that inflation is rising in the United States.

The producer price index rose 0.6% in April after surging 1.0% in March. In the 12 months through April, the PPI shot up 6.2%. That was the biggest year-on-year rise since the series was revamped in 2010 and followed a 4.2% jump in March.

Thursday’s report follows data on Wednesday showing consumer prices increased by the most in nearly 12 years in April. The dollar rose on Wednesday to one-week highs as some investors increased bets that the Federal Reserve could raise interest rates sooner than the bank has forecast. But the move in the dollar was relatively muted, suggesting many investors continue to take Fed policymakers at their word.

U.S. Federal Reserve Vice Chair Richard Clarida said on Wednesday that weak job growth and strong inflation in April had not changed the central bank’s plan to maintain loose monetary policy.

The dollar index was last flat on Thursday at 90.739, down from a week high hit earlier in the day of 90.909.

“So far the FX response has been fairly tepid and for good reasons,” wrote Alan Ruskin, macro strategist at Deutsche Bank.

While Ruskin does believe that the surge in inflation is large enough that a full reversal in coming months does not seem likely, he doesn’t expect that a single month of data will prompt an immediate shift in the Fed’s positioning.

“Where does this leave the USD? Probably mildly firmer, but without a clear Fed shift, struggling at recent dollar index highs near 91.50, and the euro at a 1.1986/1.20 area of support.”

The euro was slightly stronger on the day, last up 0.05% to $1.208. The Japanese yen was modestly stronger against the dollar, last up 0.11% at 109.575.

The Australian dollar, which is seen as a proxy for risk appetite, was up 0.10% at 0.773 versus the U.S. dollar, after having its biggest daily drop since March on Wednesday.

In cryptocurrencies, bitcoin plunged 13% on Wednesday after Elon Musk said in a tweet that Tesla Inc would no longer accept the cryptocurrency for car purchases.

Bitcoin however recovered some of those losses overnight and was last up 1.96% at around $49,697 at 1132 GMT.

Bitcoin is still up around 30% from where it was just before Tesla said on Feb. 8 that it had invested around $1.5 billion in bitcoin and would accept it for payment in the near future.

The U.S. dollar rose off a 2-1/2-month low versus major peers on Wednesday, as some traders bet that a hotter-than-expected inflation report could force the Federal Reserve to tighten monetary policy sooner than telegraphed.

Though the dollar index touched its weakest in more than two months against the euro overnight, it later rose to 90.77 as selling pressure persisted in stock markets following the Labor Department’s report on consumer prices.

The government said inflation accelerated at its fastest pace in more than 12 years for April with the Consumer Price Index rising 4.2% from a year ago, compared to the Dow Jones estimate for a 3.6% increase.

Excluding volatile food and energy prices, the core CPI increased 3% from the same period in 2020 and 0.9% on a monthly basis. The respective estimates were 2.3% and 0.3%. The higher numbers might add pressure on the Fed to bring forward rate rises, a worry which has contributed to a selloff in rate-sensitive tech shares this week.

The yen rose 0.9% to 109.59 per dollar.

Commodity currencies cooled their heels near milestone peaks, with the Aussie and kiwi sliding 0.7% to sit just below recent ten-week tops, while the Canadian dollar was little changed just shy of Tuesday’s almost four-year high. Sterling ticked lower to trade at $1.406.

“As long as the equity market doesn’t experience a more drastic correction, the dollar is unlikely to get a safe-haven bid,” said Rodrigo Catril, a senior currency strategist at National Australia Bank in Sydney.

“We know now that the Fed is very much firmly committed to easy policy,” he said, a view reinforced by recent comments from Fed members that have made Dallas Fed President Robert Kaplan’s mention of tapering support last month look like an outlier.

“Everybody else has come out firmly saying it’s not the time…and that’s a dollar negative story.”

St. Louis Federal Reserve President James Bullard said on Tuesday he expects inflation could stay as high as 2.5% next year, while Fed Governor Lael Brainard said weak labor data last week shows the recovery has a long way to run.

“Remaining patient through the transitory surge associated with reopening will help ensure that the underlying economic momentum that will be needed to reach our goals as some current tailwinds shift to headwinds is not curtailed by a premature tightening of financial conditions,” she said.

Nominal U.S. yields crept higher with the focus on inflation, but real yields remain negative and under pressure.

The U.S. currency is also being weighed down by the improving global growth outlook, which tends to draw investors’ cash to emerging markets, and by big and growing U.S. trade and current account deficits which also send dollars abroad.

The dollar index is “finding some risk aversion-related stability just above 90” amid the sell-off in equities, “but it’s unlikely to morph into any meaningful upside,” Westpac strategists wrote in a report.

“Fedspeak continues to underscore the patient pledge,” while the “eurozone’s rebound metrics continue to close the gap with the U.S.,” keeping the dollar index heavy through the next several months, they said.

In the digital space, cryptocurrency ether rose about 4% to a record $4,358.38, bringing its gain this month to 56%.

That’s as bigger rival bitcoin remains stuck below $60,000, nearly a month after setting an all-time peak at $64,895.22. It last traded around $57,471.20.

The U.S. dollar hovered near a 2-1/2-month low versus major peers on Wednesday, as traders hung on to bets that the Federal Reserve would remain steadfast in its easy policy settings ahead of data expected to show a sharp rise in annual U.S. inflation.

Analysts forecast figures due at 1230 GMT to show a 3.6% lift in year-on-year prices, boosted by last April’s low base.

The month-on-month forecast is for a modest 0.2% rise.

Higher numbers might add pressure on the Fed to bring forward rate rises, a worry which has contributed to a selloff in rate-sensitive tech shares this week.

But currency markets have been soothed by repeated promises of patience from Fed speakers and the dollar has been pressured by gains in commodity currencies.

The greenback touched its weakest in more than two months against the euro overnight, following a strong European growth survey, and it traded just shy of that level at $1.2126 in Asia.

The yen fell 0.2% to 108.835 per dollar.

Risk aversion helped a gauge of the safe-haven dollar a fraction higher to 90.278 as selling pressure persisted in stock markets, but that still left the dollar index just above key support around 89.677 and 89.206.

Commodity currencies cooled their heels near milestone peaks, with the Aussie and kiwi sliding 0.5% to sit just below recent ten-week tops, while the Canadian dollar was little changed just shy of Tuesday’s almost four-year high.

Sterling clung to recent gains to trade at $1.4118.

“As long as the equity market doesn’t experience a more drastic correction, the dollar is unlikely to get a safe-haven bid,” said Rodrigo Catril, a senior currency strategist at National Australia Bank in Sydney.

“We know now that the Fed is very much firmly committed to easy policy,” he said, a view reinforced by recent comments from Fed members that have made Dallas Fed President Robert Kaplan’s mention of tapering support last month look like an outlier.

“Everybody else has come out firmly saying it’s not the time…and that’s a dollar negative story.”

St. Louis Federal Reserve President James Bullard said on Tuesday he expects inflation could stay as high as 2.5% next year, while Fed Governor Lael Brainard said weak labor data last week shows the recovery has a long way to run.

“Remaining patient through the transitory surge associated with reopening will help ensure that the underlying economic momentum that will be needed to reach our goals as some current tailwinds shift to headwinds is not curtailed by a premature tightening of financial conditions,” she said.

Nominal U.S. yields crept higher with the focus on inflation, but real yields remain negative and under pressure.

The U.S. currency is also being weighed down by the improving global growth outlook, which tends to draw investors’ cash to emerging markets, and by big and growing U.S. trade and current account deficits which also send dollars abroad.

The dollar index is “finding some risk aversion-related stability just above 90” amid the sell-off in equities, “but it’s unlikely to morph into any meaningful upside,” Westpac strategists wrote in a report.

“Fedspeak continues to underscore the patient pledge,” while the “eurozone’s rebound metrics continue to close the gap with the U.S.,” keeping the dollar index heavy through the next several months, they said.

In the digital space, cryptocurrency ether rose about 4% to a record $4,358.38, bringing its gain this month to 56%.

That’s as bigger rival bitcoin remains stuck below $60,000, nearly a month after setting an all-time peak at $64,895.22. It last traded around $57,471.20.