FX Rate News

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.

The dollar languished near a more than two-month low versus major peers on Monday as investors continued to assess the implications for monetary policy of a disappointing U.S. employment report, ahead of inflation data this week.

The U.S. created only a little more than a quarter of the jobs that economists had forecast last month and the unemployment rate unexpectedly ticked higher, pouring cold water on speculation the pandemic recovery could spark faster inflation that the Federal Reserve anticipates.

The dollar index, which measures the greenback against six rivals, stood at 90.178, after dipping as low as 90.128 for the first time since Feb. 26.

Notably, the British pound rallied 0.3%, rising as high as $1.4036 for the first time since Feb. 25, despite Scotland’s leader saying another referendum on independence was inevitable after her party’s resounding election victory.

“The USD’s choppy downtrend can continue this week,” Commonwealth Bank of Australia strategist Kim Mundy wrote in a client note, predicting a break above $1.22 for the euro.

“The unexpected slow recovery in the U.S. labour market reinforces the FOMC’s patient approach to monetary policy,” while “the improving global economic outlook is a medium-term weight on the USD.”

The euro rose 0.1% to $1.2172, earlier touching the highest since Feb. 26 at $1.2177.

The dollar was little changed at 108.57 yen, not far from its lowest since April 27.

The Aussie dollar ticked 0.1% higher to $0.78535, close to Friday’s more-than-two-month high of 0.7863.

Canada’s loonie rallied to a fresh 3-1/2-year high of $1.2111.

In cryptocurrencies, ether changed hands at $3,918.78 after reaching a record $3,985 on Sunday. The second-biggest digital token has rallied 41% so far this month.

Bigger rival bitcoin remained stuck around $58,000, consolidating after retreating as low as $47,004.20 on April 25 following its surge to a record $64,895.22 in the middle of that month.

Meanwhile, no. 4 virtual currency dogecoin languished around $0.56 after losing more than a third of its price on Sunday, when Elon Musk called the token a “hustle” during his guest-host spot on the “Saturday Night Live” comedy sketch TV show. [nL1N2MW0KS]

“Musk is probably happy to jump on the joke of what is a meme(coin), but investors are probably feeling real pain now,” said Justin d’Anethan, Hong Kong-based head of Exchange Sales at Diginex, a digital asset exchange.

“The supply is essentially unlimited (for dogecoin), and so unsustainable long-term. It’s a question of who will sell first and who will be left holding the bags.”

The dollar hovered near a two-week high on Thursday, consolidating ahead of a key U.S. jobs report that may provide clues on when the Federal Reserve will dial back monetary stimulus.

The greenback has rebounded from a one-month low over the past week, swung by U.S. economic data that has largely supported the case for a rapid recovery from the pandemic, with traders weighing whether a lift in inflation may force the Fed’s hand earlier than policymakers have so far suggested.

The Canadian dollar traded near a three-year high, buoyed by oil price gains, while the Aussie slipped amid a deterioration in Australia’s relationship with China.

Cryptocurrency ether was close to a record high after setting new all-time peaks in each of the past nine sessions.

The dollar index, which measures the U.S. currency against six major peers, was little changed at 91.311 on Thursday, after rising as high as 91.436 in the previous session for the first time since April 19. It had dipped as low as 90.422 on April 29.

“The USD is likely to continue to respond to the debate about whether or not the Fed’s view that inflation will be transitory is correct,” Rabobank strategist Jane Foley wrote in a research report.

With several forecasters predicting a one-million-plus increase in nonfarm payrolls, “the USD may continue to find a good level of support in the near-term,” with the currency strengthening to $1.19 per euro over a one-month horizon, she said.
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Fed Vice Chair Clarida says he still doesn’t think it’s time to talk about tapering

The euro traded right around the psychologically important $1.20 mark on Thursday, a day after dipping to $1.1986 for the first time since April 19.

The dollar bought 109.375 yen , consolidating after rallying as high as 109.695 on Monday, a level not seen since April 13.

So far, Fed Chair Jerome Powell has argued the labor market is far short of where it needs to be to start talking of tapering asset purchases. The central bank has said it will not raise its benchmark Fed funds rate through 2023.

Three Fed officials spoke on Wednesday, with Chicago Fed President Charles Evans saying that while he was more optimistic about U.S. growth than he was a few months ago, he expects monetary policy to stay super-easy for some time.

Boston Fed President Eric Rosengren said inflation will be temporarily distorted this spring as the U.S. economy works through imbalances caused by the pandemic but the pressures should be short-lived and should not lead to a pullback in monetary policy.

Cleveland Fed President Loretta Mester said more progress will be needed in the job market before the Fed’s conditions for reducing its extensive support will be met.

“Despite constant reassurances from (U.S. Treasury Secretary Janet) Yellen and an array of Fed officials that the coming increase in inflation will prove ‘transitory,’ … markets are evidently a bit more worried,” National Australia Bank strategist Rodrigo Catril wrote in a client note.

The dollar bounced on Tuesday after Yellen said rate hikes may be needed to stop the economy from overheating, though she later downplayed the immediacy of tightening.

The commodity-linked Canadian dollar traded at C$1.22665 per greenback after hitting a three-year high of 1.2252 on Wednesday, helped by higher crude prices and optimism over the global economic recovery.

The Aussie, though, fell 0.2% to $0.7728 after China said it would indefinitely suspend all activities under the China-Australia strategic economic dialogue mechanism.

China’s yuan edged higher to 6.4801 per dollar in offshore trading.

Sterling was little changed at $1.3899, consolidating around that level over the past two weeks with the Bank of England expected by some forecasters to announce a tapering of its bond-buying program at a meeting later Thursday, after vaccinations bolstered Britain’s economic recovery.

In cryptocurrencies, ether traded at $3,462.62 after reaching a record $3,559.97 on Tuesday, skyrocketing nearly 800% this month.

Bigger rival bitcoin was around $56,755, vacillating between around $59,000 and $52,000 in recent days. It marked a record high at $64,895.22 in mid-April, but then lost momentum, slumping as low as $47,004.20 toward the end of that month.

The dollar tried to extend a rally on Wednesday as chatter about the possibility of higher U.S. interest rates and a sell-off in tech stocks soured risk sentiment to the benefit of the safe-haven currency.

The dollar’s bounce on Tuesday put pressure on the euro, which dropped to $1.2021 and threatened to breach important chart support in the $1.1995/1.2000 area.

“If sustained, this could suggest today’s session may be important for near-term direction, particularly if EURUSD managed to close below the key $1.20 pivot,” said Ned Rumpeltin, European head of FX strategy at TD Securities.

“We think we will need to see a daily close below the $1.20 mark to give more credence to observations that the USD tends to appreciate broadly during the month of May.”

Against a basket of currencies, the dollar was barely changed around 91.21 but away from a recent two-month low of 90.422. It needs to clear resistance at 91.425 to extend the rebound.

Rumpeltin noted that over the last 10 years, the dollar had averaged gains against each of its G10 counterparts in May.

The bounce was partly sparked by comments from U.S. Treasury Secretary Janet Yellen that rate hikes may be needed to stop the economy overheating.

Yellen later downplayed their importance, but even the slightest mention of U.S. tightening has an outsized impact in markets that have become so dependent on monetary stimulus.

The effect was apparent in large-cap tech stocks, which suffered hefty losses overnight, dragging the Nasdaq down 1.88%.

So far, Federal Reserve Chair Jerome Powell has argued the labor market is still far short of where it needs to be to start talking of tapering asset buying.

That position could be tested on Friday should the April payrolls report be as strong as some are suggesting. The median forecast is for a rise of 978,000, but estimates stretch as high as 2.1 million.

Three more Fed officials are speaking later on Wednesday providing the opportunity for further market-moving comments.

Westpac analysts pointed to expectations for a blockbuster payrolls number as a factor helping the dollar build a base.

“The Fed’s more influential dovish core will have the last word, but that won’t stop more hawkish regional Fed presidents from producing the odd tapering headline,” they said in a note, adding the dollar’s uptrend could go as far as 92 if payrolls beat the lofty expectations.

Europe’s reopening and pick up in the vaccination pace there could limit the dollar’s gains, they wrote.

Trading was limited in Asia with Japan and China on holiday, but the New Zealand dollar blipped higher to $0.7170 when local jobs data proved strong than expected.

The dollar was steady on the yen at 109.31 and again needs to break resistance at 109.61 to encourage more speculative bids.

One drag for the dollar is the U.S. trade deficit, which expanded to a record $74.4 billion in March.

“This is a medium-term weight on US dollar because the U.S. will become increasingly dependent on long term foreign investments to finance the current account deficit,” said Kim Mundy, a senior economist & currency strategist at CBA.

“As a result, we believe the recent USD downtrend has further to run.”

The U.S. dollar skidded toward a fourth straight weekly decline against a basket of major peers on Friday, as the Federal Reserve stuck to its message of ultra-low interest rates for longer.

The dollar index was on course to end the week 0.2% lower, bringing its losses for April to 2.7%. A four-week losing streak would be the longest since the six-week slide to the end of last July, and the monthly loss would also be the biggest since July’s 4% slump.

The Canadian dollar climbed to a more-than-three-year high of C$1.2268 per greenback on Friday, on track for a 1.6% weekly gain that would be its biggest since the start of November.

At the conclusion of the Fed’s latest policy meeting on Wednesday, Chair Jerome Powell acknowledged the U.S. economy’s growth, but said there was not yet enough evidence of “substantial further progress” toward recovery to warrant a change to its ultra-loose monetary settings.

That growth accelerated in the first quarter, buoyed by government stimulus checks, setting the course for what is expected to be the strongest performance this year in nearly four decades.

Signs that a strengthening economy, particularly in the labor market, might force the Fed into an earlier tapering of its asset-purchase program had pushed the dollar index, or DXY, to a five-month high at the end of March.

“DXY may attempt a rebound in coming days as expectations turn to a potentially blockbuster April payrolls next week, but gains will prove short-lived with Fed officials to underscore Powell’s resolutely dovish stance,” Westpac strategists wrote in a client note.

The gauge is likely to drop below 90 in the near term, from 90.6 currently, but the “DXY’s depreciation trend is likely more of an ongoing grind than a wholesale sharp setback,” they said.

The Fed’s dovishness was in marked contrast to the Bank of Canada, which has already begun to taper its asset purchases. Canada’s commodity-linked loonie got additional support from a surge in oil to a six-week peak along with higher lumber prices.

Rising commodity prices also supported the Australian dollar, which gained 0.2% to $0.77785, climbing back toward the six-week high of $0.78180 touched Thursday.

The euro has largely flat at $1.21165, near the two-month high of $1.2150 set the previous session. The shared currency is up 0.2% for the week and 3.3% for the month.

The yen, a traditional haven, saw opposite fortunes, hurt by a recovery in U.S. Treasury yields and a rally
to record highs for global stocks that sapped demand for the safest assets.

Japan’s currency changed hands at 108.81 per dollar, near the two-week low of 109.22 from Thursday, setting it up for a loss of about 0.9% for the week.

China’s yuan traded near its strongest since March 3 in the offshore market, last changing hands at 6.4635 per dollar, even as gauges of Chinese factory activity showed a loss of momentum in April.

The yuan has jumped some 1.5% this month from a four-month low of 6.5875 on April 1, but Mizuho strategist Ken Cheung wrote in a client note that a re-pricing of growth trajectories for China versus the United States will keep the rally in check from here.

In cryptocurrencies, ether hovered below a record high of $2,800.89 set on Thursday, after being lifted this week on media reports about the European Investment Bank’s plans to launch a “digital bond” sale on the ethereum blockchain network.

“The use case of ethereum has just grown exponentially, particularly with wider use of non-fungible tokens (NFTs), said Tim Frost, the chief executive at fintech company YIELD App.

“All signs point to a continued bull market.”

Bigger rival bitcoin traded at $54,256.24, vacillating around that level this week after dipping as low as $47,004.20 on Sunday, following a sharp retreat from the record high of $64,895.22 marked in the middle of the month.

The dollar edged lower on Monday amid speculation that U.S. Federal Reserve Chairman Jerome Powell will shun talk of tapering bond purchases at a policy meeting this week.

The euro rose to a near two-month high against the greenback before data later on Monday forecast to show an improvement in German business sentiment, which would bolster hopes for a brighter economic outlook.

Powell is likely to face questions over whether an improving labour market and rising coronavirus vaccinations warrant a withdrawal of monetary easing, but most analysts expect him to say such talk is premature, which would put downward pressure on Treasury yields and the dollar.

“The dollar is likely to continue to trend lower in line with the gathering momentum in the world economy,” analysts at Commonwealth Bank of Australia wrote in a research note.

“We expect the Fed policy meeting to be a non-event for the dollar. The U.S. economy is a long way from meeting the ‘substantial further progress’ threshold for the Fed to taper its asset purchases.”

The dollar stood at 107.75 yen, close to its lowest since March 4.

The euro rose to $1.2110, adding to gains made on Friday after positive data on European services and manufacturing activity.

A survey from Germany’s Ifo institute due later on Monday is expected to show business conditions continued to improve in Europe’s largest economy.

The British pound was quoted at $1.3897, adding to a 0.3% gain in the previous session.

The dollar was little changed at 0.9128 Swiss franc, close to a two-month low.

The Fed’s next meeting ends on Wednesday, and while no major policy changes are expected, investors will pay close attention to Powell’s comments after the meeting.

Rising coronavirus vaccination rates and an improving economic outlook are reasons to be optimistic, but many traders and analysts say Powell is likely to reiterate his commitment to keep easy policy in place for an extended period.

U.S. funds have been selling the dollar against the yen recently in Asian trading, which is an additional sign that major investors expect lower U.S. Treasury yields to push the dollar lower, some traders in Tokyo said.

In emerging markets, traders are watching the Turkish lira to see if it will test its all-time low of 8.58 per dollar due to worsening relations with the United States and worries about a dovish central bank governor. The lira was last quoted at 8.4285.

The onshore yuan edged up to 6.4866 per dollar, just shy of a six-week high.

Elsewhere, the Australian and New Zealand dollars rose toward one-month highs but are likely to track moves in global commodity prices, traders said.

In the cryptocurrency market, Bitcoin reclaimed the $50,000 mark and smaller rival Ether rose, recouping some of their losses from last week triggered by U.S. President Joe Biden’s plan to raise capital gains taxes for wealthy investors.