FX Rate News

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.

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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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.”