2021 | FX Rate News

Dollar hovers near peaks as Fed heads for taper

The dollar hovered near recent peaks versus the euro and the yen on Wednesday as investors waited for the U.S. Federal Reserve to start unwinding its pandemic-era stimulus and to assess Chair Jerome Powell’s take on inflationary pressures.

Moves were small in Asia and at the start of the European trading day in the middle of a busy week for central banks, with the Bank of England meeting on Thursday.

The dollar index traded unchanged on the day at 94.11 , close to its 2021 peak of 94.563 hit last month.

Against the euro the greenback was also flat at $1.1579 , near the $1.1522 low reached in October and which marked the strongest level for the dollar since July 2020.

Dollar/yen traded at 113.94, near a four-year high .

The Fed is expected to announce the tapering of its $120 billion-a-month asset purchase programme in its policy statement at 1800 GMT.

Traders are focused on clues around what that means for rate rises, after a month of seismic bond market moves in anticipation of hikes as soon as next year.

Analysts are divided as to what the Fed meeting and statement will mean for the dollar.

“The dollar bearish case today is that the tapering is widely expected and an inherently dovish Fed, concerned about upsetting the bond market, does not change its statement substantially,” ING strategists wrote.

“Yet at some point, the Fed is going to have to acknowledge that elevated inflation does not ‘largely reflect transitory factors’. Many dovish central banks around the world are already doing this and should the Fed start to show greater concern about this today, U.S. rates and the dollar could get a boost.”

Investors will watch closely for Chair Powell’s assessment of inflation after other central banks have signalled a more hawkish tilt in the face of rising price pressures, although whether that means higher interest rates soon is still to be seen.

“Fed Policy is under challenge in ways that cannot be remembered since the early Volcker years,” said Deutsche Bank strategist Alan Ruskin.

“Inflation is taking off with an economy that has been pricing itself off zero nominal rates and dramatic negative real rates for the last 18 months,” he said.

A day ago, the Reserve Bank of Australia abandoned its short-term yield target and dropped its expectation of holding rates at record lows until 2024, though the Aussie fell because the bank also pushed back on aggressive pricing for 2022 hikes.

The Aussie had dropped 1.2% against the dollar on Tuesday and sat at $0.7448 on Wednesday, up 0.3% from the session open. The kiwi was also dragged 1% lower, but found support on Wednesday from strong labour data and hovered at $0.7134, up 0.3%.

Money markets are pricing in a 15 basis point hike from the Bank of England on Thursday, although a weaker pound this week suggest some nervousness that the BoE could disappoint.

Sterling fell to a two-week low at $1.3606.

Dollar wallows near one-month low as strong euro, stock rally weigh

The dollar languished near its weakest level in a month against major peers on Friday, hurt by a stronger euro as traders bet on earlier European interest rate hikes and as an equity rally sapped demand for safer assets.

New Zealand’s dollar sagged amid a slide in consumer confidence, while cryptocurrency ether climbed to a record high.

The dollar index, which measures the currency against six main rivals including the euro, was little changed at 93.354, close to Thursday’s low at 93.277 — a level not seen since Sept. 27.
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The euro was largely flat at $1.16855 after rising as high as $1.1692 overnight for the first time since Sept. 28.

Against the yen, another traditional safe haven, the dollar was mostly unchanged at 113.50, continuing to ease back gradually from the almost three-year high of 114.695 reached last week.

An index of global shares rose to the cusp of a record peak this week, powered by an earnings-driven rally to consecutive record highs on Wall Street, including overnight.

The euro was propelled on Thursday after comments by European Central Bank President Christine Lagarde were interpreted in some quarters as not going far enough in affirming the central bank’s dovish stance.

Foreign-exchange markets have become volatile around central bank activity. Big moves began Wednesday with hawkish comments from the Bank of Canada, and were followed on Thursday with an action by the Reserve Bank of Australia and the ECB’s remarks — all ahead of meetings next week of the U.S. Federal Reserve and the Bank of England.

The Fed is widely expected to begin to taper stimulus from next month, with interest rate lift-off following next year.

Lagarde’s “pushback was not forceful enough,” opening the way for the euro to test $1.1680 in the near term, TD Securities strategists wrote in a note.

However, “extrapolating (euro strength) beyond that seems like a big ask a week ahead of the Fed’s meeting where taper will be announced,” they said.

Traders will have their eyes on economic gauges from both regions later in the day, with Europe seeing a preliminary reading of the consumer price index, while the U.S. gets personal spending and income data.

Elsewhere, sterling was almost flat at $.1.37925 as it continued to fluctuate near a one-month high reached last week.

The pound has been buffeted recently by speculation over whether the Bank of England would proceed with an interest rate hike at its meeting next week.

The Australian dollar was largely unchanged at $0.75425, after reaching the highest since early July at $0.75555 in the previous session.

That uptick was fueled when the RBA declined to buy a government bond at the heart of its stimulus program, fanning speculation the central bank will allow rates to rise earlier than expected. The central bank again resisted buying the key bond earlier on Friday.

The New Zealand dollar fell 0.3% to $0.71795 after a gauge of consumer confidence dipped sharply in October.

In cryptocurrencies, ether rose to a record $4,400, while bigger rival bitcoin also gained to trade around $62,000, but down from the record $67,016.50 reached last week.

Dollar edges lower, Australian dollar calms after inflation jump

The U.S. dollar slipped as European markets opened on Wednesday, while the Australian dollar pared gains, having jumped following surprisingly strong inflation data which raised the possibility of sooner-than-planned rate hikes.

Currency markets have been generally quiet in recent sessions as investors wait for the U.S. Federal Reserve meeting next week.

Investors are also looking to policy announcements this week from the European, Canadian and Japanese central banks for clues on the outlook for rates amid a backdrop of supply-side driven global inflation pressures.

At 0802 GMT, the U.S. dollar index was down less than 0.1% at 93.877.

Short-term U.S. Treasury yields spiked overnight as investors bet that inflation would bring forward interest rate rises.

Standard Chartered FX analysts wrote in a client note that they expect currency market risk sentiment to be limited until the Fed next week, where “hawkish risks are still under-priced”.

The Australian dollar was up 0.2% at $0.7513, having reached as high as $0.7536 overnight after data showed that Australian core inflation sped to a six-year high in September, surprising the market. The data prompted a spike in short-term yields.

The Reserve Bank of Australia meets on Tuesday next week and market pricing is at odds with RBA policymakers’ insistence that there will be no rate hikes before 2024.

“The Reserve Bank of Australia (RBA) might be forced into action after all,” wrote Commerzbank analyst Antje Praefcke in a note to clients, referring to rising 3-year yields.

“The market is likely to increasingly assume that the RBA will have to rethink its expansionary monetary policy further due to economic and inflationary developments, which is likely to principally support AUD.”

The U.S. dollar was down around 0.4% against Japan’s yen, with the pair changing hands at 113.745 – still within recent ranges and close to the four-year high of 114.695 the dollar touched against the yen one week ago.

“Short-JPY positions have clearly become a very popular trade among speculators… but it still seems hard to see the yen finding sustained support at the moment,” wrote ING FX strategists in a client note.

“115.00 in USD/JPY now appears a matter of when, rather than if.”

The Bank of Japan meets on Thursday and is widely expected to downgrade its economic assessment, with markets betting on no rate hike in the foreseeable future.

The Canadian dollar was little changed at $1.2402 ahead of Canada’s central bank policy announcement later in the session.

The central bank is expected to raise its inflation forecast and to largely end stimulus from its pandemic-era bond buying program, starting a countdown of sorts to the first interest rate hike since October 2018

The euro was up around 0.1% at $1.1605. The European Central Bank, which meets on Thursday, is expected to take a dovish stance.

The British pound was down 0.2% against the euro at 84.39 pence per euro. The UK’s budget forecasts will be unveiled later in the session but are not expected to impact the pound.

In cryptocurrencies, bitcoin was down 2% at around $59,114 , having been knocked off the all-time high of $67,016.50 it reached last week.

Dollar wavers ahead of central bank meetings in Europe, Japan, Canada

The dollar inched higher against the safe-haven yen while easing a touch against riskier currencies on Tuesday as solid company earnings and a glimmer of improvement in U.S.-China trade ties lifted sentiment, while rates expectations weighed on the euro.

The greenback was last up 0.2% at 113.93 yen and was holding steady against the euro at $1.1599. Moves were slight as traders eye central bank meetings in Europe, Japan and Canada this week and data releases in Australia and the United States.

China’s Vice Premier Liu He and U.S. Treasury Secretary Janet Yellen held a video call which readouts from both sides suggested was at least not acrimonious.

Meanwhile earnings have driven U.S. stock markets to fresh peaks and car-maker and mood barometer Tesla to a valuation above $1 trillion.

The risk-sensitive Australian dollar rose about 0.3% and poked past 75 U.S. cents to $0.7513, China’s yuan was firm near a four-month high at 6.3845 per dollar and the South Korean won hit a seven-week peak.

“The dollar has been reversing lower because of a more risk- on market, and that’s due to earnings coming in better than expected,” said Bank of Singapore analyst Moh Siong Sim, while investors await data and central bank meetings for direction.

The U.S. dollar index held at 93.856 — in between a one-year high of 94.563 hit earlier in the month and a one-month low of 93.483 made on Monday. Analysts expect it might stay there through a slew of central bank meetings in coming days.

“The dollar looks to be finding its feet in the mid-93s,” analysts at Westpac said in a note, as focus turns first to U.S. growth data on Wednesday and then to the European Central Bank’s meeting on Thursday.

Data and policy

Anticipation of the ECB pushing back on market inflation forecasts — as well as a soft German sentiment survey on Monday — have dragged on the euro ahead of Thursday.

The ECB will likely underscore its dovish guidance, while U.S. GDP will show the economy’s rebound stalling, Westpac’s analysts said, though the scene remains set for the Federal Reserve to announce a reduction in bond purchases next week.

“All told that should keep short-term yield spreads trending in the dollar’s favour and leave the dollar with a bid tone.”

Central bank meetings in Japan and Canada are also scheduled this week and rising inflation in Canada has increased pressure on policymakers to pull forward rate hikes. Traders are watching Wednesday’s meeting for any hawkish clues.

The Canadian dollar stands at C$1.2383 per dollar, having scaled a four-month peak last week.

No changes are expected from the Bank of Japan, although Reuters has reported that policymakers are discussing an end to a COVID-19 loan scheme.

Australian quarterly inflation data due on Wednesday is also likely to set the tone in a tussle between rates markets and the resolutely dovish Reserve Bank of Australia (RBA).

Economists expect growth in Australia’s trimmed mean consumer prices, the central bank’s preferred measure, to have accelerated to an annual pace of 1.8% in the September quarter from 1.6% in the preceding three months.

Beyond Friday, the Fed, the RBA and the Bank of England meet next week with markets having priced a roughly 60% chance that the Bank of England raises interest rates to head off inflation.

Sterling has been firming at the prospect of higher rates and was last steady at $1.3765. The New Zealand dollar rose 0.1% to $0.7174.

Yen skids to four-year low as stocks rally with Treasury yields

U.S. bonds drove currencies on Wednesday, with a rise in long-term rates pushing the dollar to an almost four-year high on the yen, but a decline in shorter-dated yields putting it on the back foot against most other major peers.

The dollar and yen were also under pressure from a global equity rally that sapped demand for assets regarded as safe havens.

The dollar climbed as high as 114.585 yen for the first time since November 2017, with benchmark 10-year Treasury yields touching a fresh five-month high at 1.6630% in Asia. Higher long-term U.S. yields increase the allure of those assets to Japanese investors.

However, two-year Treasury yields hovered around 0.4050% after retreating sharply overnight from Monday’s 19-month high of 0.4480%, signaling a scaling back of bets for early Federal Reserve interest rate hikes.

That contrasted to a rise in wagers this week for faster rate increases in the U.K. and New Zealand, which also pulled up expectations in neighbors like the euro zone and Australia.

“Risk sentiment remains in the ascendancy,” while “a fall-back in front-end U.S. yields, so symptomatic of a slight paring back in expectations for when Fed rates ‘lift-off’ might occur,” dealt the dollar a double-whammy, Ray Attrill, head of FX strategy at National Australia Bank in Sydney, wrote in a research note.

At the same time, markets are coming to “the — highly belated — realization that whether the Fed raises (its policy) rate in 2022 or not until later, other central banks are getting in ahead of them … with the Bank of England likely next cab off the rank as early as next month,” Attrill said.

The dollar index — which measures the greenback versus six rivals, including the yen — was little changed at 93.822 from Tuesday, when it lost about 0.2% and dipped to the lowest this month at 93.501.

The U.S. economic outlook got a little less rosy on Tuesday after data showed that U.S. homebuilding unexpectedly fell in September and permits dropped to a one-year low amid acute shortages of raw materials and labor, supporting expectations that economic growth slowed sharply in the third quarter.

Richmond Fed President Thomas Barkin said on Tuesday that U.S. labor shortages may outlast the coronavirus pandemic and limit overall economic growth unless the country comes up with better education, health and childcare policies to boost the number of people willing and able to work.

The euro was about flat at $1.16335 from Tuesday, when it jumped as high as $1.1670 for the first time since Sept. 29.

Sterling was little changed at $1.3793 after touching a one-month peak of $1.3834 in the previous session.

The risk-sensitive Australian dollar traded slightly weaker at $0.74725, but remained close to Tuesday’s more than three-month top at $0.74855.

New Zealand’s kiwi dollar was little changed at $0.71565, near the highest since June 11 at $0.7172, reached overnight.

In the equities space, Asia-Pacific stocks extended a global rally on Wednesday, with an index of regional shares adding 0.33%.

“The move in equities has seen the USD and JPY shunned,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a client note.

“It’s really just pick a JPY cross and see the ‘rip your face off’ move,” he said. “This is a momentum play here and timing the pullback in JPY crosses is key, but it doesn’t feel like we’re going to see a rush to cover JPY shorts anytime soon in this dynamic.”