FX Rate News

The dollar was headed for a big weekly loss on Friday, touching a five-month low against the Japanese yen and struggling versus the euro after a dovish shift by the Federal Reserve.

In joining the European Central Bank by opening the door to interest rate cuts and more stimulus to counter an economic slowdown, the Fed sent the dollar to its biggest two-day loss of 2019.

Forex markets were much quieter on Friday, however, as traders took stock.

The focus now shifts to whether the United States and China can resolve their trade row at a Group of 20 leaders summit in Japan next week.

Presidents Xi Jinping and Donald Trump are due to meet on the sidelines of the G20 next weekend, but analysts say chances of a decisive breakthrough are low.

An escalating dispute between the United States and Iran after the downing of an unmanned U.S. surveillance drone also supported buying of the safe-haven yen, which hit a five-month high on Friday.

“The yen is continuing to benefit from the dovish shift in Fed and ECB policy alongside other low-yielding currencies such as the Swiss franc,” said MUFG analysts in a note.

The yen rose as high as 107.04 yen per dollar before settling at 107.3.

Money markets are pricing in three Fed rate cuts before year-end, starting with the next meeting in July, and tipping as many as five cuts through mid-2020.

That could undermine the dollar but some analysts also say that given it still yields more than other major currencies it is likely to remain in demand.

The dollar index, which measures the greenback against a basket of currencies, fell 0.1% to 96.495, its lowest for two weeks.

The euro hit a new weekly high of $1.1319, up 0.2% on the day, after French and German business activity strengthened more than expected in June, according to surveys.

“The dollar’s upside is capped, because we are already looking past the Fed’s July meeting for more rate cuts,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities.

“Central banks are in a competition to ease policy, so it’s a question of which currency to sell. There are some hopes surrounding G20, but we’ve been here before only to be disappointed.”

Sterling changed hands at $1.2699. The Bank of England on Thursday struck a less dovish tone than other central banks but cut its second-quarter growth forecast, capping a pound rally.

The dollar traded near two-week highs against the euro on Wednesday as investors waited to see whether the U.S. Federal Reserve would sound as dovish on future interest rate cuts and stimulus as the European Central Bank.

ECB President Mario Draghi’s about-face on easing on Tuesday fuelled talk of a worldwide wave of central bank stimulus, firing up stocks, bonds and commodities and weakening the euro, although currency moves were relatively small.

The Fed is scheduled to release its monetary policy statement at 1800 GMT, followed by a press conference by Chairman Jerome Powell. Futures markets have almost fully priced in a quarter-point easing in July and imply more than 60 basis points of cuts by Christmas.

The euro gained 0.1% to $1.1203, having fallen to a two-week low of $1.1181 on Tuesday after Draghi spoke and German government bond yields dropped to new record lows.

The dollar, measured against other currencies, fell 0.1% to 97.561 from Tuesday’s two-week high.

The dollar had been under pressure in late May as global trade tensions and economic weakness led investors to bet on Fed rate cuts. Expectations other central banks will follow suit have since helped the dollar recover.

“Relative to what the market is priced for, it’s hard to see how they (the Fed) will surprise the market on the dovish side. The risks are the other way,” said Adam Cole, a currencies strategist at RBC Capital Markets.

Cole said he believed the market was “underplaying” the spread between Europe and the United States, and even if the Fed cuts, investors will still be paying to hold euros while earning a relatively good yield with dollars.

That should support the U.S. currency, with Cole predicting a low for the euro of $1.10 this year.

U.S. President Donald Trump said on Tuesday he would have an extended meeting with Chinese President Xi Jinping at the Group of 20 summit later this month, raising hopes they can ease tensions in a trade dispute that has damaged the world economy.

UBS wealth management said that the dollar could rise against the yen if the Fed was less dovish than expected or the G-20 summit ends with a temporary U.S.-China trade war truce

“A bounce toward 110 would make adding short USDJPY positions attractive,” UBS said. “We expect USDJPY to grind lower as US growth slows and as US-China trade tensions persist.”

The yen stood little changed at 108.41 yen per dollar .

China’s yuan pulled back from Tuesday’s three-week high following reports that Xi and Trump would meet. The offshore yuan last traded at 6.9070, down 0.1% on the day.

Sterling rose to $1.2575 after May inflation rose in line with expectations, although concern that eurosceptic Boris Johnson would become Britain’s next prime minister is likely to cap any rally.

Bond futures imply a 66% probability the Reserve Bank of Australia will follow up its recent quarter-point easing with another in July. If not, a reduction to 1% is considered certain by August.

Markets were also raising bets of a rate cut by the Reserve Bank of New Zealand.

“Rising interest rate cut expectations thanks to weak data has fuelled weakness in the Australian dollar with trade tensions also weighing on demand,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.

The weakness in the Australian dollar has pushed investors to unwind some of their carry trades, where speculators borrow in a low-yielding currency such as the Swiss franc and invest in relatively higher-yielding ones such as the Australian dollars.

The Australian dollar/Swiss franc cross, a barometer for such speculative bets, has fallen nearly 6% in eight weeks, indicating hedge funds were losing money on such bets.

Elsewhere, the U.S. dollar gained on Friday and was on track for its biggest weekly rise in three weeks, before U.S. retail sales data. Sales growth was to reach 0.3% in May compared with 0.1% in April.

With investors betting on U.S. rate cuts in the coming weeks, investors are worried that stronger sales might undermine some of those bets and push the dollar higher.

Bond markets are pricing in a 28% chance of a rate cut next week, followed by a sure bet at the end of July.

Against a basket of its rivals, the dollar rose 0.1% to a one-week high of 97.09

The Australian dollar was the big loser on Thursday after mixed employment data raised expectations for an interest rate cut, while investor nerves about suspected attacks on two oil tankers in the Gulf of Oman supported demand for the Japanese yen.

The yen also rallied on Thursday as fading hopes for a U.S.-China trade deal at this month’s G20 meeting, as well as massive street protests in Hong Kong, drove investors into safe-haven assets, although stock markets in Europe managed to claw higher.

Reports of the attacks on two tankers, which sent crude oil prices soaring, added to the already-heightened tensions between Iran and the United States.

The yen rose to as high as 108.16 yen per dollar before settling at 108.44, up 0.1% on the day.

“You still have a lot of uncertainty when it comes to geopolitics,” said Manuel Oliveri, analyst at Credit Agricole.

“The focus is shifting to the G20 meeting. Risk sentiment remains relatively unstable,” he added, although cautioning that expectations for interest rate cuts by the U.S. Federal Reserve were keeping investor confidence from weakening further.

The Australian dollar, viewed as a barometer for global investor sentiment, fell 0.3% to $0.6901, a two-week low. Against the yen the Aussie tumbled half a percent to its weakest since January before hitting 74.89, down 0.4%.

Mixed jobs data in Australia were taken as a green light for an early rate cut. Analysts noted that markets were pricing in a 65% chance of a rate cut in July, and a more than 80% chance of one by August and September. Australian government bond yields slid to record lows.

The dollar edged lower, the index hitting 96.965 after softer-than-expected inflation numbers published on Wednesday. The greenback hit its lowest since late March on Monday as expectations grow that the Fed will soon cut rates.

The euro was little changed at $1.1287.

“In our view, the Fed has blinked and rate cuts are coming from July. At the same time, the ECB (European Central Bank) lacks answers on what to do about the risk of a de-anchoring of inflation expectations. The Fed-ECB monetary policy divergence should pave the way for a higher EUR/USD over the coming six months,” Danske Bank analysts said in a note.

The Swiss franc rose 0.2% to 1.1215 francs per euro after the Swiss National Bank said it could further relax its ultra-loose monetary policy but did not sound as concerned about the economic outlook as some analysts had expected.

Sterling slipped, extending Wednesday’s losses after British lawmakers defeated an attempt led by the opposition Labour Party to try to block a no-deal Brexit.

The pound was last down 0.1% at $1.2675 and 89.06 pence per euro.

The dollar hovered near an 11-week low against its peers on Wednesday, weighed by expectations the U.S. Federal Reserve could cut interest rates some time in the next few months.

The dollar index versus a basket of six major currencies was effectively flat at 96.707, trading just above the 96.459 level it hit on Monday, its lowest since late March.

The index has been under pressure following a sharp decline in long-term U.S. Treasury yields, which fell to near two-year lows on Friday after a soft U.S. jobs report raised expectations for an interest rate cut by the Fed.

Investor focus is now on the Fed’s next policy meeting on June 18-19 and what kind of signals the central bank could offer on the direction of monetary policy.

“The market has priced in a rate cut by the Fed to a significant degree,” said Shinichiro Kadota, senior strategist at Barclays in Tokyo.

“So the market is waiting for next week’s Fed meeting as a chance to see by how much and for how long it is ready to ease policy.”

Expectations for a central bank rate cut this year rose last week after a number of Fed officials, including Chairman Jerome Powell, hinted they were open to easing monetary policy.

According to the CME Group’s FedWatch Tool, interest rate futures traders are pricing in a 17% chance of easing at the Fed’s meeting next week and an 80% chance at the following meeting in July.

The euro was steady at $1.1330 and in close reach of a three-month peak of $1.1348 scaled on Friday.

The single currency was little affected by U.S. President Donald Trump’saccusation that Europe was devaluing the euro, which has gained roughly 1.4% against the dollar so far in June.

Trump tweeted on Tuesday that the euro and other currencies are devalued against the dollar and put the United States at a big disadvantage.

“For the first time in a while the U.S. president decided to criticise the currency policies of other countries,” said Makoto Noji, chief currency and foreign bond strategist at SMBC Nikko Securities.

“But his criticism lacked the strength of his earlier statements on currencies. When he took office, Trump had stressed that a weaker dollar was necessary to create U.S. employment.”

The dollar was little changed at 108.480 yen. The greenback has crawled off a five-month low of 107.810 plumbed a week ago when risk aversion in the broader markets heightened demand for the safe-haven yen.

China’s yuan was steady in offshore trade at 6.9250 per dollar after bouncing back the previous day from seven-month lows.

The yuan had risen on Tuesday after China’s central bank said it would sell yuan-denominated bills in Hong Kong in late June, in a move that some market analysts believed was aimed at stemming a sharp decline in the yuan.

An escalation in the U.S.-China trade conflict has weighed heavily on the yuan this year.

The dollar steadied above a recent two-and-a-half-month low on Tuesday as investors focused on a Group of 20 summit later this month where Beijing and Washington might make some progress on trade talks.

A 3.5% rally in the dollar against its rivals in the first five months of 2019 has come to a halt in recent weeks as dovish comments from Federal Reserve officials and weak economic data bolster rate-cut expectations.

Though markets are only pricing in about a 20% chance of a rate cut in June, they are fully pricing in a cut by July, and more than three rate hikes by mid-2020. The next policy meeting is scheduled for next week.

Rising rate cut bets have also prompted investors to increase holdings of other currencies, with latest positioning data showing the biggest weekly rise in euro positions in nine months.

With the dollar having weakened 1% this month against a basket of other major currencies to hit a late-March low of 96.46 last week, investors are firmly focused on a G20 meeting in Osaka, Japan, on June 28-29.

The dollar was broadly steady at 96.80 on Tuesday.

“That meeting is now becoming the centerpiece for financial markets in the coming days,” said Simon Derrick, a currency strategist at BNY Mellon in London.

U.S. President Donald Trump said on Monday he was ready to impose more tariffs if talks at the summit with China’s president, Xi Jinping, make no progress.

Trump said last week he would decide after the meeting of the leaders of the world’s largest economies whether to carry out a threat to impose tariffs on at least $300 billion in Chinese goods.

Away from the upcoming G20 summit, investors have become more cautious of betting on further dollar weakness.

“Bets of U.S. rate cuts have been rising quickly in recent days and we think the pricing has become too aggressive so the dollar’s downside is limited,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

The euro was a touch firmer at $1.1318 though a survey showed investor morale in the euro zone deteriorated sharply in June, falling well short of expectations.

Elsewhere, the pound was lower as a leadership contest for the ruling Conservative Party got underway this week. The euro edged to a five-month high against the pound to 89.32 pence before British employment data.

Recent data, particularly manufacturing figures, have been weak, fueling expectations that the next move from the Bank of England will be a rate cut.

Policymakers, however, have adopted an unexpectedly hawkish stance.

The Bank of England will probably need to raise interest rates sooner than financial markets expect, policymaker Michael Saunders said on Monday.

The Mexican peso jumped against the dollar on Monday after the United Statesand Mexico struck a migration deal late last week to avert a tariff war, providing some much-needed relief to fragile market sentiment.

Over the past year, trade disputes between the United States and its trading partners, including a long-running conflict with China, have slowed global growth and unsettled financial markets.

China’s exports unexpectedly returned to growth in May despite higher U.S. tariffs, data showed on Monday, but many suspected the rise was due to firms front-loading shipments to avoid higher U.S. tariffs. Fears of a longer U.S.-China trade war continued to persist.

The figures showed imports in May dropped 8.5% from a year earlier, a much worse than expected outcome that signaled weak domestic consumption and weighed on the yuan.

The Mexican peso rose 2% to 19.2275 pesos per dollar after trading resumed for the first time after Mexico agreed on Friday to expand along the entire border a program that sends migrants seeking asylum in the United States to Mexico.

U.S. President Donald Trump had threatened to impose 5% import tariffs on all Mexican goods starting on Monday if Mexico did not commit to do more to tighten its borders.

“We all knew that Donald Trump was unpredictable, but this was taking it to a whole new level,” said Chris Weston, Melbourne-based head of research at foreign exchange brokerage Pepperstone.

“This was political, it was social. It meant that financial markets had to wear a higher risk premium.”

Futures for the S&P 500 were last up 0.2%. Benchmark 10-year Treasury yields jumped back 3 basis points to 2.114% after hitting a 21-month low of 2.053% on Friday after soft U.S. jobs data.

Against the safe-haven yen, the dollar gained 0.25% to 108.475 yen.

The yen gained in late May on the deteriorating global trade outlook as the currency tends to benefit during geopolitical or financial stress as Japan is the world’s biggest creditor nation.

Bart Wakabayashi, Tokyo branch manager at State Street Bank, said the lift to sentiment from the U.S.-Mexico deal would “probably spill over to optimism with China and hopefully some progress there.”

“We’ve had trade talks with the EU, with Japan. Hopefully these will start to turn to the positive narrative which should see further dollar weakness in the yen,” he said.

Still, the dollar’s gains were checked by rising expectations the Federal Reservewill cut interest rates during the second half of the year.

Those views were bolstered on Friday when data showed nonfarm payrolls increased by 75,000 jobs last month, much smaller than the 185,000 additions estimated by economists in a Reuters poll, suggesting the loss of momentum in economic activity was spreading to the labor market.

Fed funds rate futures are still pricing in more than two 25-basis-point rate hikes by the end of this year even after their retreat early on Monday after the U.S.-Mexico migration deal.

“The market is saying it is not a question of if, it is a question of when, and to what extent, we’re going to get a rate cut for this year,” said Pepperstone’s Weston.

Against a basket of six peers, the dollar index rose 0.2% to 96.750, recovering slightly after ending with a 1.2% loss last week, its worst weekly performance since the week of Feb. 16, 2018.

Group of 20 finance leaders said on Sunday that trade and geopolitical tensions have “intensified”, raising risks to improving global growth, but they stopped short of calling for a resolution of the deepening U.S.-China trade conflict.

Elsewhere, the Chinese yuan was last down about 0.3% at 6.9336 per dollar in onshore trade after briefly brushing its lowest since late November in the wake of the weak import data.

The Australian dollar slipped 0.4% to $0.6973, giving up some of last week’s gains, when it rose 0.9%.

The euro dipped nearly 0.2% to $1.1313, retreating from an 11-week high of $1.1348 touched on Friday.

Japan’s yen approached a five-month high on Thursday after a lack of progress in U.S.-Mexico trade talks hurt risk sentiment and drove investors towards safe-haven currencies.

Investors were focused on the euro, which has strengthened recently on the back of dollar weakness caused by rising bets on a U.S. interest rate cut.

The European Central Bank meets on Thursday, with traders looking to see how concerned policymakers are about signs of a downturn in growth.

Recession fears are sweeping across the world and central banks have in recent weeks cut rates in what could signal the start of a global monetary easing cycle.

The Japanese yen has been the main beneficiary from a shift towards assets investors deem safer.

It rose as much as 0.3% to 108.07 yen per dollar, close to its strongest level since Jan. 10, after negotiations in Washington on Wednesday aimed at averting U.S. tariffs on Mexican goods showed little sign of progress.

U.S. President Donald Trump unexpectedly told Mexico last week to take a harder line on curbing illegal immigration or face 5% tariffs on all its exports to the United States.

The Mexican peso, already saddled with trade concerns, took a hit after credit ratings agency Fitch downgraded its sovereign debt rating on Wednesday by a notch from BBB+ to BBB, just two notches above junk status.

The euro was 0.05% higher at $1.1227 after retreating 0.3% on Wednesday. The single currency has brushed a 1-1/2-month high of $1.1307 this week.

The ECB will try at Thursday’s meeting to give the ailing euro zone a boost and may even set the stage for more action later this year as an escalating global trade war unravels the benefits of years of monetary stimulus. It will also give updated staff growth and inflation forecasts.

“What matters during the ECB meeting today is whether the Council will stick to its view that the economy will recover in the second half of the year,” Antje Praefcke, an analyst at Commerzbank, wrote in a note to clients.

“Draghi would have to sound very concerned about the growth and inflation outlook to cause a reaction in the euro.”

ECB President Mario Draghi is expected to maintain guidance about the possibility of more stimulus.

The dollar index against a basket of six major currencies stooped to a two-month low of 96.749 midweek as benchmark U.S. yields declined sharply this week to 21-month lows on investor risk aversion and heightened prospects of the Federal Reserve cutting interest rates.

The dollar struggled near seven-week lows on Wednesday after U.S. central bank officials hinted at the possibility of an interest rate cut in the face of rising risks to trade and global growth.

Federal Reserve Chairman Jerome Powell dropped his standard reference to the Fed being “patient” in approaching any rate decision on Tuesday, saying instead the central bank will respond as “as appropriate” to trade pressure.

The dollar index against a basket of six peers was last flat at 97.077, within reach of a recent low of 96.995 brushed overnight – its lowest since April 18. It has now fallen 1.3% from a more than two-year high of 98.371 touched on May 23.

Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said major currencies barely reacted to Powell’s comments as investors had already priced in several rate cuts by the Fed on the back of the shifting global growth outlook.

The Fed chairman’s comments came a day after St. Louis Federal Reserve President James Bullard said in a speech that a rate cut may be needed “soon.”

Rate cuts by some central banks in recent weeks could potentially signal the start of a global monetary easing cycle to stave off a sharper economic downturn.

“Central banks across the globe are adopting a dovish tone. It’s kind of a preemptive move,” said Yamamoto.

“It doesn’t necessarily mean that the economy is worsening – rather the outlook worsened. It’s mainly related to the trade tensions between the U.S. and China and the U.S. and Mexico.”

Australia’s central bank on Tuesday slashed benchmark cash rates to a record low of 1.25% and signalled willingness to go further if the worsening outlook persists.

Last month, New Zealand’s central bank cut its benchmark interest rate for the first time in two-and-a-half years as it moved to support a cooling economy and counter global uncertainties.

In South Korea, its central bank last week kept policy settings unchanged but adopted a more accommodative tone while India is expected to cut rates at its policy meeting on Thursday.

On Wednesday, the Australian dollar rose 0.15% to $0.7000 despite data showing growth in the Australian economy picked up only modestly in the first quarter while the annual pace was at its slowest in a decade.

The A$1.9 trillion ($1.3 trillion) economy expanded 0.4% in the three months ended March, while annual GDP rose 1.8%, the weakest since the global financial crisis.

The New Zealand dollar was in the spotlight after a senior official of the Reserve Bank of New Zealand was quoted as saying the central bank’s central view was that interest rates would remain broadly around current levels for the foreseeable future.

The kiwi was last up 0.3% at $0.6629, having brushed a one-month low earlier in the session.

Against the yen, the dollar edged down 0.02% to 108.125 yen per dollar, within striking distance of a near five-month high of 107.845 – its highest since Jan. 10 – hit during the previous session.

Minori Uchida, chief currency analyst at MUFG Bank, said the yen was likely to be supported for the time being as a U.S. rate cut would likely signal further weakness in the global economy.

“The dollar will lose some of its strength if interest rates will actually be cut in the United States,” said Uchida.

“Japanese interest rates are already at such a low level that they are unlikely to be cut any further. Rate differentials are likely to get smaller if other countries conduct monetary easing,” he said.

The euro was up 0.1% at $1.1260, extending its gains to a fourth session.

The yen brushed a more than four-month high against the dollar on Monday and the Swiss franc rose as U.S. President Donald Trump’s hard stance on trade broadened to countries beyond China, stoking investor demand for safe-haven assets.

With trade issues remaining front-and-center, investor appetite for risk has been dampened by fears of a global growth slowdown that has helped stoke demand for government debt and triggered an equity sell-off.

Perceived safe-haven assets were well supported despite a private survey on the Chinese manufacturing sector pointing to a modest expansion in factory activity as export orders bounced from a contraction.

In a recent development, U.S. and Mexican officials were preparing for trade talks after Trump vowed to impose punitive tariffs on all Mexican goods in an intensifying dispute over migration.

“The Mexican news is quite punchy. No one was really expecting it to the same extent they were with China,” said Chris Weston, Melbourne-based head of research at foreign exchange brokerage Pepperstone.

“Mexico is a huge trade partner with the U.S.,” he said.

The Swiss franc rallied 0.3% against the dollar to 0.9975 and the yen gained 0.15% to 108.10 yen, its highest since mid-January.

On Friday, the Japanese currency had booked its sharpest daily rise in more than two years, climbing a little over 1.2% during the session.

The yen is considered a safe haven asset in times of geopolitical and financial turmoil as Japan is the world’s biggest creditor nation.

U.S. and Mexican officials were preparing on Sunday for upcoming talks aimed at averting a trade clash after Trump said he would apply 5% tariffs on the country’s goods on June 10 if it does not halt the flow of illegal immigration across the U.S.-Mexico border.

A day earlier, Mexico’s president Andres Manuel Lopez Obrador had hinted his country could tighten migration controls to defuse tensions with Trump, saying he expected “good results” from talks with Washington.

The Mexican peso, hit by Trump’s sudden threat to impose tariffs on Friday, regained some stability, trading at 19.6165 to the dollar, after its 2.5% fall on Friday.

Market participants also kept a focus on the trade dispute between the United States and China, the world’s two largest economies.

A senior Chinese official and trade negotiator said on Sunday Washington cannot use pressure to force a trade deal on China and refused to be drawn on whether the leaders of the two countries would meet at the G20 summit in Japan at the end of the month to bash out an agreement.

“Markets are trying to catch up with negative news in relation to trade relations for the time being,” said Kumiko Ishikawa, senior analyst at Sony Financial Holdings.

“They’re seriously starting to react to prolonged trade tensions in a risk-off way.”

The dollar dipped after benchmark 10-year U.S. Treasury yields hit as low as 2.121% on Monday, their lowest since September 2017.

Against a basket of six major currencies, the dollar index slipped 0.15% to 97.606, though it is still up 1.5% for the year.

The euro gained 0.15% to $1.1185, rising for a second session after tacking on 0.35% on Friday — its first gain in five sessions.

The Australian dollar was up 0.3% to hit a near three-week high of $0.6958 on the back of the positive Chinese factory activity reading.

The Aussie’s gain came despite a New York Times report, citing sources, that Trump had been urged to impose tariffs on Australian imports in response to an increase in exports of aluminium to the United States over the last year.