FX Rate News

The dollar hit its highest in a month on Thursday and pressed the euro towards major support levels, after the Federal Reserve set the stage for rate hikes next year — far sooner than its developed market peers are expected to move.

The U.S. central bank left policy settings unchanged overnight and, as expected, did not announce the beginning of asset purchase tapering. But the Federal Reserve said “a moderation in the pace of asset purchases may soon be warranted” and Fed Chair Jerome Powell said board members believed tapering could conclude around mid-2022, opening the way for rate hikes after that.

The dollar rose broadly after his comments, especially against the euro and yen. The U.S. yield curve flattened and Fed funds futures markets moved to price a 50% chance of a hike in October and to fully price a 25 basis point rate hike in December.

At a one-month low of $1.1684 in early Asia trade, the euro is close to its 2021 trough of $1.1664 and not far from major support at $1.1602, a break of which could open the way to falls as far as $1.14.

Liquidity was lightened by a holiday in Japan on Thursday.

“Powell didn’t give any specifics about the start of the taper, he said there was broad agreement in the end of taper, one which ‘concludes around the middle of next year,’” said John Briggs, strategist at NatWest Markets.

“This is in our view more important than when the taper starts, as it starts the clock on when the next hike may occur.”

The yen also lost ground after Powell’s news conference and ended up falling 0.5% for the session – its sharpest drop in more than three months — taking it to 109.87 per dollar, about the middle of a range it has kept since March.

The dollar index hit a one-month high of 93.526.

The Bank of Japan, which met on Wednesday, made no policy changes and is not seen lifting rates anytime soon while the European Central Bank is also lagging the Fed.

Fed members’ new projections have hikes starting in 2022.

The yen, a safe-haven asset, had also suffered a bit on Wednesday because developer China Evergrande offered the market some relief after its main unit said it agreed to settle a bond interest payment with some domestic creditors.

It still has to settle $83.5 million in interest on an offshore bond due on Thursday.

The Australian and New Zealand dollars gave up gains after Powell’s remarks and traded slightly lower in Asia, with the Aussie last down 0.1% at $0.7323, while the kiwi dipped below $0.70 to $0.6992.

The Bank of England meets on Thursday, with traders expecting it to keep rates steady but wary of any hawkish surprises.

Sterling is hovering just above big chart support at $1.3615.

Norges Bank, meanwhile, is widely expected to deliver the first hike among G10 central banks on Thursday. The Norwegian Crown was steady in Asia at 8.669 per dollar.

Gold prices were flat on Tuesday as investors adopted a risk-averse stance amid caution ahead of U.S. Federal Reserve’s policy meeting where the central bank is expected to provide cues on when it will begin tapering its asset purchases.

Bullion is considered as a hedge against inflation and currency debasement likely resulting from the widespread stimulus. A hawkish move by the Fed would diminish gold’s appeal, while an eventual interest rate hike would also raise the opportunity cost of holding the non-interest bearing asset.

Prices had recovered on Monday from an over one-month low on safe-haven demand as China’s Evergrande debt woes fueled sharp sell-off in stocks worldwide.

U.S. gold futures were flat at $1,764.40.

Worries about the fallout from property developer Evergrande’s solvency issues spooked financial markets and lifted the dollar index, which hit a near one-month peak on Monday. A firmer dollar generally makes bullion more expensive for other currency holders.

Fed is likely to provide an outlook on how soon and how often they think the economy will need interest rates rises over the next three years when they release new forecasts at their policy meeting on Wednesday.

The volume of the European Central Bank’s bond purchases is becoming “less important” as the economic outlook improves and the money-printing scheme becomes a tool for guiding rate expectations, ECB board member Isabel Schnabel said on Monday.

Russia’s gold reserves stood at 73.8 million troy ounces as of the start of September, the central bank said on Monday.

Silver edged up 0.1% to $22.26 per ounce, having hit a more than nine-month low of $22.01 in the previous session.

Palladium climbed 0.6% to $1,896.30 after slumping to its lowest level since June 2020 on Monday.

Platinum rose 0.5% to $915.05, having touched a 10-month low on Monday.

The dollar held near three-week highs on Friday after better-than-expected retail sales numbers in the United States boosted bets on the strength of the U.S. economy and earlier monetary policy tightening.

The euro pulled itself into positive territory by the European mid-morning but at $1.1783 remained close to a three-week low.

U.S. retail sales unexpectedly increased in August, data showed on Thursday, rising 0.7% from the previous month despite expectations of a 0.8% fall. A business sentiment survey also showed a big improvement.

The figures revive expectations for an early tapering of its asset purchases by the Federal Reserve, which has its two-day policy meeting next week.

The more bullish reading of the U.S. economic outlook faces another test on Friday with the release of the University of Michigan’s consumer sentiment index.

The dollar index last stood at 92.818 down slightly on the session but near Thursday’s three-week high of 92.965.

Currency markets were generally quiet on Friday with traders reluctant to take on new positions ahead of a clutch of important central bank meetings next week including the Fed, the Bank of Japan and the Bank of England.

“Despite the ongoing China Evergrande saga plus views from many that equities are due a correction, risk sentiment remains surprisingly supported. Expect another quiet FX trading session before a busy week of central bank meetings,” ING analysts said.

The Swiss franc steadied after hitting a five-month low versus the dollar of 0.9280 francs.

The dollar rose 0.2% to 109.99 Japanese yen, having gained 0.34% on Thursday to rise off Wednesday’s six-week low of 109.11.

The yen has shown a limited reaction to the ruling Liberal Democratic Party’s leadership race, which formally kicks off on Friday ahead of a Sept. 29 vote. The LDP’s parliamentary dominance means the party’s new leader will become prime minister.

The Chinese yuan recovered slightly after Thursday’s 0.4% fall.

The offshore yuan traded at 6.4526 to the dollar, pressured by growing worries about China’s real estate sector as investors fear property giant China Evergrande could default on its coupon payment next week.

The Evergrande saga follows a series of regulatory clampdowns in China that has knocked investor confidence in the local stock market, as well as signs growth there is slowing.

“The continued uncertainty over news out of China, with anything from tech to property firms taking a hit, has yet to offer much of a blow to ongoing risk sentiment but must be closely watched for signs of contagion,” said Jeremy Thomson-Cook, chief economist at business payments firm Equals Money.

Still, on a trade-weighted basis, the yuan stood near its highest level in five years, both in the onshore and offshore market.

The British pound slipped 0.1% to $1.3784 as UK retail sales undershot expectations. However, with investors bringing forward forecasts for a Bank of England interest rate hike to mid-2022, sterling remains supported and is near one-month highs.

The dollar slipped against major currencies on Wednesday after softer-than-expected U.S. inflation data released on Tuesday eased short-term expectations about tapering of asset purchases from the Federal Reserve.

The dollar index last stood at 92.546, down about 0.1% on the day from Tuesday, when it dropped following the inflation data but recovered on haven demand as stocks slid on Wall Street.

But the greenback trimmed losses after data showing import prices fell unexpectedly in August and a higher-than-expected reading for the New York Fed’s business survey.

These reports offset data showing U.S. manufacturing output slowed in August, rising 0.2% from a 1.6% increase the previous month.

“The reality is that there is no guidance other than the obvious: poor economic indicators mean the recovery from the pandemic has slowed down more than expected by Delta,” said Juan Perez, FX strategist and trader at Tempus Inc in Washington.

“The buck in the midst of all this will still have room for gains and spikes as doom and gloom play a role in diminished risk-appetite, but idiosyncratic improvements in the U.K., as we saw with CPI, and other regions could eventually start weakening the dollar more consistently,” he added.

Wednesday’s data showed Britain’s inflation rate hit its highest in almost a decade last month after a record jump that was largely fuelled by a rebound in restaurant prices.

The dollar index, a measure of the greenback’s value against six major currencies, has traded between 92.3 and 92.9 over the past week as several Fed officials suggested the U.S. central bank could reduce buying debt securities by the end of the year, even after a weaker-than-expected payrolls report earlier this month.

While elevated inflation has kept pressure on policymakers, data overnight showed the U.S. consumer price index, excluding the volatile food and energy components, edged up just 0.1% last month.

The Federal Open Market Committee’s (FOMC) two-day policy meeting next week should provide some clarity on the outlook for tapering and interest rates.

Tapering typically lifts the dollar as it suggests the Fed is one step closer to tighter monetary policy. It also means the central bank will be buying fewer debt assets, in effect reducing the number of dollars in circulation and increasing the currency’s value.

In early afternoon trading, the euro was little changed against the dollar at $1.1808.

The dollar fell to a four-week low of 109.14 yen, and last changed hands at 109.43, down 0.2%.

Meanwhile, the Chinese yuan and Australian dollar slid after Chinese data showed factory and retail sales growth cooled more sharply than expected last month.

The yuan extended its decline to as far as 6.4433 yuan per dollar. The dollar was last down 0.2% at 6.4261 yuan.

The Aussie dollar sank as low as US$0.7301, its lowest in more than two weeks following China’s data, but recovered to trade up 0.1% US$0.7329.

The dollar was little changed against other major currencies on Tuesday as investors looked to U.S. inflation data later in the session for clues on the timing of policy tightening by the Federal Reserve.

The dollar index stood at 92.622, having retreated from a two-week high of 92.887 hit earlier on Monday while the euro changed hands at $1.18105, having bounced back from Monday’s low of $1.17705, its lowest since Aug. 27.

An immediate focus is on U.S. consumer price data due at 1230 GMT.

Economists expect core CPI, an index which strips out volatile energy and food prices, to have risen 0.3% in August from July. Its annual inflation is seen easing slightly to 4.2% from 4.3% in July.

Overall consumer price inflation is expected to dip slightly to 5.3% from 5.4% in July.

“With the core CPI still seen above 4%, inflation is at a very abnormal level. Powell has been saying inflation will be transient since March but the Fed will probably have to adjust its wording in the next policy statement,” said Yukio Ishizuki, senior strategist at Daiwa Securities.

The Fed will hold its policy meeting next week. The Wall Street Journal reported on Friday that Fed officials will seek an agreement to begin paring bond purchases in November.

“Tapering this year is a done deal. The next question will be whether the Fed will raise interest rates next year. Given persistent inflation, the Fed may not be able to afford to be relaxed about it for too long,” Ishizuki said.

The yen eased slightly to 110.005 yen to the dollar but stayed in its familiar territory over the past few weeks around 110.

Limited moves in the currency pair saw traders reducing expectations for market swings.

Implied volatilities on dollar/yen options have fallen to historic levels, with one-month volatility falling to as low as 4.625%, its lowest since February last year just before the pandemic.

Risk-sensitive currencies were little moved for now, with sterling at $1.3836 and the Australian dollar at $0.7362.

While the world’s stock markets stood near record highs, supporting risk sentiment, some analysts warn of growing headwinds to risk sentiment.

“Global risk appetite is edging toward a more tenuous and twitchy phase. A discordant G2 is increasingly the problem,” said Alan Ruskin, macro strategist at Deutsche Bank in New York.

“The U.S.-China trade dispute has not found any resolution. On the contrary, market forces are dominating quantity targets, and widening bilateral balances will again prove a source of tension,” he added.

Many investors were also keeping an eye on developments in China, where cash-strapped property developer Evergrande struggled to fend off solvency concerns while a relentless wave of regulatory moves by Beijing hit big tech firms.

In the crypto market, Bitcoin dropped to as low as $43,400, its lowest in almost a week and last stood at $44,973 while ether also eased to $3,283.

The dollar headed for its first winning week in three on Friday after rebounding from a payrolls-induced sell-off, as investors continued to ponder the timing of a tapering of Federal Reserve stimulus.

The dollar index, which gauges the greenback against six major peers, was little changed on the day at 92.541, remaining on course for a 0.49% weekly rise.

Last Friday, it sank to the lowest since Aug. 3 after data showed the U.S. economy created the fewest jobs for seven months, reducing the odds of an imminent reduction of the Fed’s asset-purchase program.

Since then, a number of officials have come out to suggest a taper is still likely this year though, including Fed Governor Michelle Bowman, who said overnight that the weak August labor report won’t throw the central bank off course.

Data on Thursday showed that the number of Americans filing new claims for jobless benefits fell last week to the lowest level in nearly 18 months, offering more evidence that job growth was being hindered by labor shortages rather than cooling demand for workers.

“The Fed looks set to taper later this year, underscored by recent comments this week,” Mark McCormick, global head of FX strategy at TD Securities, wrote in a research note.

However, even with the trend toward monetary policy becoming less accommodative globally, financial conditions remain ultra-loose, which “binds how much room the USD has to run and favors selling rallies,” McCormick said.

The euro was flat at $1.18235 on Friday, on track for a 0.47% decline this week.

The single currency got some small measure of support overnight, after the European Central Bank said it would trim emergency bond purchases over the coming quarter, as widely expected.

In the past two quarters, the bank has bought around 80 billion euros worth of debt each month. It provided no numerical guidance for the three months ahead, but analysts had predicted before the meeting that purchases would fall to between 60 billion and 70 billion euros in those months.

“It was a big event for economists, not so much for traders,” Chris Weston, head of research at broker Pepperstone in Melbourne, wrote in a note to clients. “The volatility was not there.”

Euro support at $1.18 “needs to give way for shorts to get any real traction here,” he said.

The dollar was little changed both on the day and for the week at 109.71 yen, still meandering in the middle of its range of the past two months.

The Aussie dollar slipped 0.07% to $0.7363, heading for a 1.16% slide this week.

The dollar rose to a one-week peak against major peers on Wednesday, buoyed by higher Treasury yields and a weaker euro ahead of a European Central Bank policy decision.

The dollar index, which measures the currency against six rivals, ticked up 0.05% to 92.580, after earlier touching 92.590, a level not seen since Sept. 1.

The euro slipped 0.05% to $1.1836 for the first time since Sept. 2.

The greenback gained 0.08% to 110.385 yen, helped by higher U.S. yields.

The benchmark 10-year Treasury note rose as high as 1.385% on Tuesday for the first time since mid-July, a climb of almost 6 basis points from Friday’s close. Monday was a U.S. holiday.

The dollar index had tumbled to its lowest levels since early August at the end of last week, when a surprisingly soft U.S. payrolls report prompted speculation the Federal Reserve will forgo announcing a taper of stimulus at a policy meeting this month. At the same time, strong wage growth warned of the potential for inflationary pressures to grow.

This week’s dollar strength appears to be the result of a shift in investor focus to wage growth, which “suggests that the Fed may stick with its tapering plan,” Ken Cheung, a strategist at Mizuho Bank in Hong Kong, wrote in a report.

“We look for further upside for the USD.”

However, the surge in Covid-19 deaths in the United States could give the central bank pause. Reuters data shows that more than 20,800 people died from the virus in the past two weeks, up about two-thirds from the prior period. President Joe Biden will outline a plan to tackle the highly contagious delta variant on Thursday.

Investors will look to a speech by New York Fed President John Williams later on Wednesday for any hints on whether the labor market is still on the Fed’s stated path of “substantial further progress” needed for a taper.

St. Louis Fed president James Bullard told the Financial Times that the central bank should go forward with a plan to start trimming stimulus this year despite the jobs slowdown last month.

“Risk aversion in the air alongside the move up in UST yields have helped the USD extend its post-payrolls recovery,” Rodrigo Catril, a senior foreign-exchange strategist at National Australia Bank, wrote in a client note.

“Investors are wary of the ECB meeting on Thursday, anticipating a potential trim to the PEPP (Pandemic Emergency Purchase Program) bond-buying pace.”

Analysts polled by Reuters see PEPP purchases falling possibly as low as 60 billion euros a month from the current 80 billion, before a further fall early next year and the scheme’s end in March.

Elsewhere, the Reserve Bank of Australia’s decision on Tuesday to forge ahead with a taper of bond purchases while adding the dovish concession of extending the program to February, helped undermine the Aussie dollar. It slipped 0.07% to $0.73825 on Wednesday, extending the previous session’s 0.7% slide.

Canada’s loonie was mostly flat at C$1.2641 per greenback after tumbling about 0.9% overnight.

Lower oil prices weighed, while investors anticipate a dovish narrative from the Bank of Canada’s policy meeting later Wednesday following an unexpected economic contraction last quarter, NAB’s Catril said.

Meanwhile, cryptocurrencies struggled to rebound from hefty losses overnight, when several trading platforms said they experienced performance issues, although it was not clear if these were a contributor to, or a result of, the volatility.

Bitcoin slipped 1% to around $46,400 after sinking as low as $42,900.01 on Tuesday. Earlier that day it had touched an almost four-month high of $52,956.47.

The dollar found support on Tuesday as investors awaited a European Central Bank meeting and U.S. data to gauge the policy outlook, while the Aussie blipped briefly higher after the Reserve Bank of Australia stuck with its tapering plans.

The greenback held the euro below $1.19 at $1.1872, was steady on the yen at 109.79 per dollar and drifted a little firmer on the Australian and New Zealand dollars at the end of the Asia session. The dollar index sat at 92.200.

The Reserve Bank of Australia stuck with plans to taper its bond buying but said it would extend the timeline as the economy struggles with coronavirus lockdowns, triggering a brief rise in the currency to $0.7469 before it eased back to support at $0.7420.

Traders said the next moves in currency markets probably depend on Thursday’s European Central Bank meeting and then on the next U.S. jobs update, in October, after a weak reading last week probably delayed any Federal Reserve tapering announcement.

“The next payroll report on Oct. 8 now looms very large as the main event in considering the timing of tapering,” said Natwest strategist John Briggs in a note to clients.

Tapering is also the focus for Thursday’s ECB meeting, with economists expecting some sort of slowdown in bond purchases but wobbles in the euro and a rising stock market are pointing to trading floors taking a slightly different view.

“If the ECB is going to taper that might provide some support for the euro,” said Moh Siong Sim, an FX strategist at the Bank of Singapore.

“But overall I don’t think it’s going to go hawkish – it’s going to…offset the tapering with a more flexible asset purchase program,” he said.

Elsewhere, sterling was marginally weaker at $1.3830 and the kiwi dipped slightly to $0.7117 with the Aussie late in Asia trade as the Aussie wound back its post-RBA jump.

The Central Bank said it would cut its bond buying by A$1 billion a week to A$4 billion, though it also extended the programme to at least mid-February which was seen as a dovish concession as lockdowns stall Australia’s economic recovery.

“For the most part you’d generally regard them as being quite optimistic on the growth prospects for the next year or so, but we shouldn’t forget it’s dovish guidance on the cash rate,” said Sean Callow, currency analyst at Westpac.

“This reversal in the Aussie shows that it is fragile and it’s going to be hard work to get to $0.75.”

Elsewhere, China’s August trade data were strong and lent support to the yuan, which has faced some pressure from growing expectations of monetary easing.

Also on the radar this week is the Bank of Canada meeting on Wednesday, where it is expected to keep rates steady but brush aside a surprise contraction in the economy in the second quarter to keep on track for a hike this year.

The Canadian dollar softened a tiny bit to C$1.2543 on Tuesday, but it remains near multiweek highs.

In cryptocurrencies, bitcoin and ether were steady at $52,736 and $3,927, respectively.

The dollar languished near a one-month low versus major peers on Monday, as investors pushed back expectations for when the Federal Reserve will begin tapering its massive stimulus.

The dollar index, which measures the currency against six rivals, edged 0.05% higher to 92.155, after dipping to 91.941 for the first time since Aug. 4 on Friday, when a closely watched U.S. labor report came out much weaker than expected.

The euro was flat at $1.18775 after matching the highest level since June 29 at $1.1909 at the end of last week. The single currency has been supported by expectations the European Central Bank, which meets Thursday, is close to tapering its own stimulus program.

The greenback edged 0.1% higher to 109.79 yen, still meandering in the middle of its trading range of the past two months.

U.S. nonfarm payrolls increased by just 235,000 in August, compared with a 728,000 median forecast by economists in a Reuters poll, as a resurgence in Covid-19 infections weighed on demand at restaurants and hotels, and stalling hiring.

The Fed has made a labor market recovery a condition for paring back its pandemic-era asset purchases.
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Commonwealth Bank of Australia pushed back expectations for a start to tapering to December from October following the jobs miss.

“The U.S.’s deteriorating Covid situation will weigh on the USD because the situation is better elsewhere in the major economies,” CBA strategists wrote in a client note.

Australia’s dollar weakened 0.17% to $0.7435, but remained close to its highest since July 15 of $0.74775, touched in the previous session. The Reserve Bank of Australia decides policy on Tuesday.

National Australia Bank predicts the central bank will reduce asset purchases again at the meeting, “although the optics of tapering amid protracted lockdowns means it is likely to be a close decision,” NAB analyst Tapas Strickland wrote in a report.

New Zealand’s kiwi slipped 0.07% to $0.71445, after rising as high as $0.7170 on Friday for the first time since June 11.

Following strong two-week rallies, both the Aussie and kiwi “appear to have firmly broken out of recent ranges,” Strickland said.

In cryptocurrencies, bitcoin was about flat at $51,785.60, after earlier touching $51,920, a level not seen since May 12.

Smaller rival ether traded little changed at $3,942.77 after topping $4,000 last week for the first time since mid-May.