FX Rate News

The U.S. dollar fell on Wednesday after Federal Reserve Chair Jerome Powell said in remarks prepared for Congress that the economy was “still a ways off” from levels the central bank wanted to see before tapering its monetary support.

His comments came a day after data showed U.S. inflation hit its highest in more than 13 years last month, which lifted the greenback to just shy of its three-month high and sharpened the focus on when central banks around the world will begin withdrawing pandemic-era stimulus.

That focus intensified on Wednesday after the Bank of Canada said it would cut its weekly bond purchases to C$2 billion ($1.6 billion) from C$3 billion, and the Reserve Bank of New Zealand said it was ending bond purchases, raising expectations it could increase rates as soon as August.

Powell said in his prepared comments ahead of his two-day testimony starting later in the day that the Fed is firm in its belief that current price increases are tied to the reopening of the economy and are transitory.

The Fed will continue to deliver support “until recovery is complete,” he said.

The dollar index declined after Powell’s comments, slipping 0.4% to 92.428. It had earlier risen as high as 92.832 – just below the 92.844 level reached last week for the first time since April 5.

Against the euro, it slipped 0.41% to $1.18245, having earlier touched its highest since April 5 off of Tuesday’s inflation reading.

“After the CPI data the dollar gained pretty quickly, considering that every part of that print was higher than expected, and I think traders started to price in the fact that maybe the Fed can’t hide behind that word transitory forever,” said John Doyle, vice president of dealing and trading at Tempus Inc.

“The dip for the euro back below 1.18 yesterday was probably a little bit overdone and so this recovery today, I think, would have happened even without Powell’s comments.”

The dollar rose almost 3% last month after the Fed’s hawkish pivot forced markets to re-assess when tapering and rate rises might start. It firmed 0.6% on Tuesday after the inflation data.

U.S. producer price inflation also rose more than expected, data on Wednesday showed.

The kiwi meanwhile soared against the greenback after New Zealand’s central bank announced it would cut short a NZ$100 billion ($70 billion) bond-buying program. It added to the gains after Powell’s comments, standing 1.19% higher.

Analysts have brought forward calls for a rate rise to as early as August, which would put New Zealand at the forefront of countries to raise interest rates.

The divergence in monetary policy outlooks pushed the Australian dollar 0.79% lower against its New Zealand counterpart to NZ$1.063 , the lowest since early June.

The Canadian dollar cut earlier gains against the greenback after the Bank of Canada in a statement said it would keep interest rates unchanged until economic slack is absorbed, which is expected to happen in the second half of 2022.

“Overall, while the perception is that the Bank is quite hawkish, especially compared with the Fed, we ultimately expect very little daylight between the two banks when it comes to rate hike timing,” said Douglas Porter, chief economist at BMO Capital Markets.

The loonie was down 0.12% at 1.2502.

The U.S. dollar touched a three-month high versus the euro and a one-week high versus the yen on Wednesday, after heated U.S. inflation spurred bets of faster monetary policy tightening than Federal Reserve officials have so far signaled.

The New Zealand dollar jumped as much as 0.8% to 70.07 U.S. cents after the Reserve Bank of New Zealand said Wednesday it would halt its large-scale asset-purchase program. On Tuesday, the kiwi had sunk as low as 69.18 cents for the first time since November.

The greenback strengthened to $1.17720 per euro, the highest since April 5, for a second day running, and was last little changed from Tuesday at $1.17780.

It rose to 110.70 yen for the first time since July 7, last trading largely flat at 110.51.

“Another hotter-than-expected U.S. CPI print has got the market wondering whether the lift in inflation will prove to be transitory or more enduring,” Tapas Strickland, an analyst at National Australia Bank, wrote in a research note.

“Markets have sided on the hawkish interpretation, bringing forward rate hike expectations to late 2022,” leading to “broad-based gains” for the dollar, the note said.

The dollar index, which measures the U.S. currency against a basket of six peers, was little changed at 92.748 after earlier rising as high as 92.832 – just below the 92.844 level reached last week for the first time since April 5.

U.S. consumer prices rose by the most in 13 years in June amid supply constraints and a continued rebound in the costs of travel-related services from pandemic-depressed levels as the economic recovery gathered momentum.

Traders are now looking ahead to Fed Chair Jerome Powell testifying before Congress on Wednesday and Thursday for any signals on the timing of a tapering of stimulus and higher interest rates. Powell has repeatedly stated that higher inflation will be transitory, noting that he expected supply chains to normalize and adapt.

Elsewhere, the Canadian dollar held its biggest decline in a week to trade largely unchanged at C$1.2500 per greenback, weakening toward a 2-1/2-month low of C$1.2590 reached last week.

The Canadian central bank is due to update its economic forecasts at a policy announcement later on Wednesday, with further tapering of asset purchases expected.

The dollar found support on Tuesday ahead of U.S. inflation data, with investors on edge over whether the figures may offer clues about the likely timing of tapering and interest rate hikes.

Against the euro the greenback held a small Monday gain to trade at $1.1861, with the common currency also weighed after European Central Bank President Christine Lagarde hinted at a dovish shift to the rates outlook for Europe.

Other majors were also largely steady early in the Asia session, as markets await the inflation data due at 1230 GMT — leaving the dollar holding modest gains against sterling, the Australian and New Zealand dollars and the Japanese yen.

Economists polled by Reuters expect the U.S. consumer price index to have risen 0.5% from May and 4.9% from a year earlier. Traders think a miss on either side could move the greenback and the bond market by shifting expectations on interest rates.

“My back-of-the-envelope playbook is that we’d need a headline year-on-year number north of 5.5% to really set this market ablaze,” said Chris Weston, head of research at broker Pepperstone, saying that could lift bond yields and the dollar.

“We know inflation will be transitory — it’s a question of how long it takes for the year-on-year change to head back to 2%,” he said. “A number below 4.5% on the headline print and we should see USD/JPY and USD/CHF under pressure.”

Societe Generale strategist Kit Juckes believes the reaction would actually be bigger if inflation falls short, leading investors to bet the U.S. central bank can maintain easy policy for longer, and also pointed to the yen as a beneficiary.

The Japanese currency stood at 110.31 yen per dollar on Tuesday, having slipped overnight to edge further away from last week’s one-month high of 109.535. The franc was steady at 0.9151 per dollar, close to a one-month high.

The Australian dollar was broadly steady at $0.7487, as was the kiwi at $0.6991. Sterling held at $1.3892 amid nerves about England abandoning Covid-19 restrictions next week even as cases keep on climbing.

The U.S. dollar index, which measures the greenback against a basket of six major currencies, was flat at 92.202, just above its 20-day moving average.

The dollar is being driven by U.S. rate expectations, and it is up nearly 2% in the month since the Federal Reserve surprised markets — and cleared out huge bets on the dollar falling – by projecting sooner-than-expected rate hikes in 2023.

Longer data bonds have also been gaining as investors see cracks emerging in the recovery and take the Fed’s hawkish shift to mean it is likely to act fast enough to keep inflation low.

Fed Chair Jerome Powell’s testimony at Congress from Wednesday will be closely watched for his response to the inflation figures and his tone on the recovery’s progress.

Before then Fed officials Neel Kashkari, Raphael Bostic and Eric Rosengren make appearances on Tuesday.

The dollar fell on Thursday from a three-month high against a basket of peers, with the euro getting a boost as investors unwound bets on risky currencies and as concerns over the spread of COVID variants increased the demand for safe havens.

The greenback was weaker against the euro, the Japanese yen and the Swiss franc, which are generally low-interest rate, stable markets that traders short, using the proceeds to buy riskier assets, said Marvin Loh, senior global markets strategist at State Street.

But with bond yields rising and equity markets tanking, riskier positions in currency markets were sold off, benefiting the euro, as well as the yen and the franc, which are also considered safe-haven currencies.

“When you have this kind of unwind going on, you’ve got strength in those currencies,” said Loh.

The euro held on to earlier gains after the European Central Bank set a new inflation target and claimed a role in fighting climate change after a strategy review, with the single currency last up 0.39% against the dollar, at 1.18365.

The dollar was 0.71% weaker against the yen at 109.825, with the yen having earlier touched 109.535, its strongest since June 11, while the Swiss franc touched 0.9134 versus the greenback, its firmest since June 17.

The dollar index, which measures the greenback against six rivals, was down 0.297% at 92.493 from Wednesday, when it reached 92.844 for the first time since April 5.

The global spread of Covid variants has added to fears that there could be some disappointment in terms of economic growth in the coming months, said Mazen Issa, senior FX strategist at TD Securities.

“While we are cautious in interpreting price action at a time of the year when liquidity is not as plentiful, we think markets are contemplating a potential growth scare as the Delta variant spreads and infections rise,” he said.

Riskier currencies, like the Australian and New Zealand dollars, tumbled, with the Aussie down 0.78% at $0.7426, touching its weakest level since mid-December, and the Kiwi dropping 1.08% to $0.6943.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits rose unexpectedly last week, an indication that the labor market recovery from the Covid-19 pandemic continues to be choppy.

“It’s an indication that if these numbers continue not to be anything stellar, or that we’re not moving towards full employment, that leaves the Fed room to just take it easy and not necessarily think about a tapering timeline,” Juan Perez, senior currency trader at Tempus Inc, said of the data.

Minutes of the U.S. Federal Reserve’s June policy meeting released on Wednesday showed that while the economic recovery “was generally seen as not having yet been met,” Fed officials agreed they should be poised to act if inflation or other risks materialized.

A Reuters poll expects the Fed to announce a strategy in August or September for tapering its asset purchases. While most predict the first cut to its bond-buying program will begin early next year, about a third of respondents forecast it will happen in the final quarter of this year.

The dollar traded near its highest in three months versus major peers on Thursday after minutes of the Federal Reserve’s June policy meeting confirmed the world’s biggest central bank is moving toward tapering its asset purchases as soon as this year.

The dollar index, which measures the greenback against six rivals, edged up to 92.759 after touching 92.844 overnight for the first time since April 5.

Fed officials said substantial further progress on economic recovery “was generally seen as not having yet been met,” although participants expected progress to continue and agreed they must be ready to act if inflation or other risks materialize, according to the minutes of the Federal Open Market Committee (FOMC)’s June policy meeting released Wednesday.

“Various participants” at the session still felt conditions for curbing the bond-buying that is supplying markets with cash would be “met somewhat earlier than they had anticipated,” while others saw a less clear signal from incoming data, the minutes showed.

Economists polled by Reuters expect the Fed to announce a strategy for tapering its asset purchases in August or September. While most predict the first cut to its bond-buying program beginning early next year, about a third of respondents forecast it will happen in the final quarter of this year.

“The FOMC remains one of the more hawkish central banks under our coverage,” and will begin to discuss a taper at the policy meeting at the end of this month, Commonwealth Bank of Australia strategist Carol Kong wrote in a client note.

“We therefore expect the USD to trade with an upward bias.”

The dollar was flat at $1.1791 per euro, just off a three-month peak of $1.17815 touched overnight, when German data raised doubts about the strength of Europe’s economic recovery.

Investor sentiment in Germany, the euro zone’s biggest economy, fell sharply in July, though it remained at a very high level, the ZEW economic research institute reported.

Later Thursday, European Central Bank President Christine Lagarde will hold a press conference after the monetary authority announces the outcome of an 18-month strategy review, which is likely to include a shift in the inflation target to 2% from “below but close to 2%” currently – which would theoretically allow for inflation overshoots.

Elsewhere, the dollar traded slightly lower at 110.585 yen, as the pair continued to be weighed down by a slide in U.S. Treasury yields.

The benchmark 10-year Treasury note yielded 1.3196% on Thursday in Asia after dipping to 1.2960% overnight for the first time since mid-February.

The Australian dollar, widely viewed as a proxy for risk appetite, traded 0.2% weaker at $0.74650, but still near the middle of the broad range in place over the past three weeks.

Reserve Bank of Australia Governor Philip Lowe reiterated Thursday that the unemployment rate would need to fall further and hold in the low 4% levels to lift inflation, an outcome not expected until 2024.

The previous day, the central bank took its first step towards stimulus tapering by announcing that a third round of its quantitative easing program would be smaller in scale than the previous two.

Meanwhile, the New Zealand dollar sank below the psychologically important 70 cent mark, sliding 0.4% to $0.69920.

The euro staggered near a three-month low against the dollar on Wednesday after disappointing German data raised doubts about the strength of the economic recovery, while the dollar awaited the Federal Reserve’s minutes from its last policy meeting.

The single currency changed hands at $1.1820, having touched a three-month low of $1.1806 on Tuesday. Against the yen, it fell to 130.81 yen, edging near its two-month low of 130.05 set on June 21.

Investor sentiment in Germany, the euro zone’s biggest economy, fell sharply in July, though it remained at a very high level, the ZEW economic research institute reported.

Even more worrying, separate data showed orders for German-made goods posted their sharpest slump in May since the first lockdown in 2020, hurt by weaker demand from countries outside the euro zone.

Other risk-sensitive currencies took a hit after oil prices abruptly plunged as OPEC producers cancelled a meeting when major players were unable to come to an agreement to increase supply.

The Australian dollar traded at $0.7490, giving up gains made on Tuesday after the Reserve Bank of Australia took its first step towards tapering its stimulus.

The RBA announced a third round of its quantitative easing program albeit at a size smaller size than the previous two rounds, while retaining the April 2024 bond for its three-year yield target of 0.1%.

Cautious risk sentiment underpinned the yen, which strengthened to 110.645 yen per dollar, extending its rebound from its 15-month low of 111.64 touched last week.

The yen’s gains came as U.S. bond yields fell to their lowest levels since February after data signaled the service sector expanded at a slower pace.

Yields have fallen in recent weeks also as many speculators who had bet that rising inflation could prompt the Federal Reserve to tighten its policy soon have been forced to bail out of their positions.

Minutes from the Fed’s June policy meeting due later on Wednesday, however, could offer fresh hints on its policy outlook.

“Many people seem to think the Fed will drop hints on tapering in August, and will say in September that it is considered and it will be implemented in December. But I believe the Fed could move earlier than those timelines,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

“The important point is, the Fed did already raise their inflation forecast.”

Elsewhere, cryptocurrencies were in a holding pattern, with bitcoin little changed at $34,066 and ether at $2,308.

The New Zealand dollar rose on Tuesday after a strong business survey pulled forward rate hike
expectations there to as soon November, while its Australian counterpart crept higher ahead of its own crucial central bank policy meeting later in the day.

The U.S. dollar and other majors were mostly steady as investors wait on the minutes from the Federal Reserve’s meeting in June when it surprised markets with a hawkish shift. They are due to be published on Wednesday.

The euro held at $1.1860, more or less where it left off Friday and the yen rose a tad to 110.86 per dollar. Sterling nudged higher after Britain set plans to end Covid-19 restrictions in a fortnight, and last bought $1.3857.

The kiwi rose as much as 0.4% to a one-week high of $0.7066, briefly breaking above its 200-day moving average, before settling around $0.7055 in morning trade.

The Aussie tacked on 0.2% to $0.7541, though it was capped ahead of the Reserve Bank of Australia (RBA) meeting.

A business survey in New Zealand showed a sharp improvement in confidence, a willingness to raise prices and a record high level of firms facing hiring issues – prompting ASB Bank to pull forward rate hike expectations to just four months away.

“It is very clear that record amounts of monetary stimulus are no longer needed to support the economy and inflation risks are getting too high for comfort,” said ASB senior economist Jane Turner in a note. “We now expect the RBNZ to start lifting the OCR from November this year (previously May 2022).”

Swaps pricing also shifted to point to a roughly 3/4 chance of a November hike which, if it occurred, would put the Reserve Bank of New Zealand on par with the super-hawkish Norges Bank which is alone among G10 banks in forecasting a 2021 hike.

Against the Australian dollar the kiwi hit a one-month high as the forecast of hikes as soon as in four months contrasts with the RBA, which has previously said it doesn’t expect to lift rates until 2024.

There is a possibility that could change on Tuesday, with the central bank flagging it will decide the fate of its bond purchase program and three-year yield target.

Economists expect the three-year yield target — which is set at the cash-rate level of 0.1% — to stay on the April 2024 bond — and for the RBA to adopt a flexible approach to bond purchases.

Elsewhere a sharp rise in oil prices following abandoned talks among producers about output levels pushed exporters’ currencies higher, driving the Norwegian crown up 0.3% overnight and lending support to the Canadian dollar.

On the horizon later in the day — when U.S. markets return from a holiday — is a U.S. services survey and a German sentiment survey.

On Wednesday, the Fed minutes might determine the near-term direction of the dollar as investors look for insight into the thinking behind last month’s hawkish shift in which Fed members projected a start to rate hikes in 2023.

“We still think it’s a bit early for any material detail to be decided about tapering, but these minutes may certainly offer the beginnings of providing at least some sense of what members are thinking,” said Alvin Tan, Asia FX strategist at RBC Capital Markets.

The U.S. dollar hit a fresh three-month high versus other major currencies on Friday, as traders wagered strong U.S. labour data could lift it even further.

The dollar index is on track to gain nearly 1% this week, its fourth weekly rise in five weeks. It hit a high of 92.699 before losing some momentum, and was last broadly flat on the day at 92.582.

The greenback has strengthened broadly since the U.S. Federal Reserve. Federal Reserve surprised markets last month by signalling it could tighten policy earlier than expected to curb inflation.

The U.S. jobs report is due at 1230 GMT and is forecast to show a solid rise of 700,000, with traders braced for any surprises.

“The FX markets have certainly become more sensitive to incoming US economic data,” currency analysts at MUFG said in a note. “That suggests to us that positioning in FX could still be short US dollars which is resulting in this further extension of dollar strength.”

A higher number in the employment report could fuel concerns of tighter Fed policy, analysts said.

“The dollar has started July strongly; a U.S. non-farm payrolls meet or beat today would maintain that momentum,” DBS Bank strategist Philip Wee wrote in a note.

The dollar hit a fresh three-month high versus the euro ahead of the report, edging up a quarter of a percent on the day to $1.18205. It was broadly flat versus the yen and British pound.

“Many people are now arguing (over) whether the dollar has indeed bottomed, because at some point in 2023 the Fed is suggesting that it could be raising interest rates,” Paul Mackel, global head of FX research at HSBC said in an outlook call.

“Also there’s some nervousness whether the dollar’s going to start to behave in a more pro-cyclical manner, that is, if the data is stronger than expected in the U.S. that the dollar really gets more strength from that.”

The dollar clung to recent gains on Wednesday as virus woes raised concerns in a market already on edge ahead of U.S. jobs data seen as crucial to the Federal Reserve’s monetary policy outlook.

Risk-sensitive commodity currencies had led overnight losses, with the Australian and New Zealand dollars each dropping about 0.7%. The euro fell 0.2% overnight while the safe-havens of Japanese yen and the Swiss franc held steady.

Morning trading in Asia did not move majors much from those levels, with the euro last at $1.1902 and the yen at 110.58 per dollar. The Aussie bought $0.7517.
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“There’s a bit of a bearish tilt to currencies,” said Westpac analyst Sean Callow. “It’s the line you would expect on a risk-off day, and maybe it’s a bit of insurance ahead of payrolls,” he added, referring to U.S. labour data due Friday.

The dollar index rose 0.2% to hit a one-week high overnight and on Wednesday sat roughly in the middle of the range it has found in the wake of the surprisingly hawkish shift in tone from the Fed earlier this month.

The risk-averse mood was underpinned by a fresh spike in global coronavirus infections and in restrictive measures to contain them which threaten to set back the pandemic recovery.

Case counts are hitting daily records in Indonesia, lockdowns are being extended in Malaysia and expanded in Australia, while travelers from Britain are facing new restrictions as the contagious delta variant spreads.

At the same time traders are wary of a surprise from U.S. economic data, starting with private payrolls later on Wednesday but with the main focus on fuller labor figures due on Friday.

Signs of strength in the labor market could add pressure on the Fed to move even sooner on interest rate hikes, and lift the dollar, while it is vulnerable if the data misses expectations.

“It’s unusually hard to forecast and so the risk of a surprise is enormous,” said Westpac’s Callow. “Super strong could really reinforce the reaction to the (Fed) and very weak could really push back on those who bought dollars post (Fed).”

Economists polled by Reuters forecast private payrolls showing a gain of 600,000 in June, a slowdown from a month ago when 987,000 jobs were created. The forecast for Friday’s non-farm payrolls is for a rise of 690,000 jobs.

“It’s not just about non-farm payrolls, but about the whole labor market,” said Rodrigo Catril, senior FX strategist at National Australia Bank in Sydney, with hourly earnings and the unemployment rate also likely to be closely watched.

“There’s also a wide dispersion in terms of estimates which suggests that either way there will be a few disappointed with a soft number as well as a really strong number.”