The dollar declined from last week, plunging to a two-month low on Monday as traders reaffirmed their view that U.S. interest rates have peaked and focused on the potential timing of rate cuts by the Federal Reserve.
Assisted by China’s central bank, the yuan reached three-month highs in both the offshore and onshore markets, while the Australian dollar also reached a three-month peak against the declining US dollar.
The dollar index in Asia reached its lowest point at 103.64, the lowest since September 1. This continues the nearly 2% weekly fall that began last week and is the most significant drop since July.
The possibility of further rate hikes by the Fed has been priced out by markets following a week of less-than-expected U.S. economic data, particularly a reading on inflation that was below forecasts.
The focus now shifts to the potential timing of the first-rate cuts. The CME FedWatch tool indicates that futures pricing places a 30% chance that the Fed may start lowering rates as early as next March.
According to Carol Kong, a currency strategist at the Commonwealth Bank of Australia (CBA), “Market pricing for FOMC policy is likely to remain pretty steady, so the dollar should have very few catalysts to move it around this week. If we do see risk appetite improve again, then the dollar can definitely weaken further.”
Ahead of flash PMI data for the eurozone that is expected later this week, the euro strengthened against the declining dollar to a two-month high of $1.0924. At $1.2475, sterling was up 0.1% last time.
The minutes of the Fed’s latest meeting, which will provide some insight into policymakers’ thoughts when they kept rates unchanged for a second time this month, are also due this week.
According to Vishnu Varathan, head of economics and strategy at Mizuho Bank, “(The) FOMC minutes may be framed as a ‘Fed pivot’, thereby underscoring risk-on rallies favoring softer U.S. Treasury yields and U.S. dollar, alongside buying in risk assets. The upshot is that the FOMC minutes may overstate incremental dovish shifts and likelihood of the Fed’s intended pivot signals.”
The Japanese yen, which had been trading at 150 per dollar but was recently up 0.4% to 149 per dollar, saw a bit of relief from the dollar’s decline. The New Zealand dollar increased by 0.52% to $0.60235, while the risk-averse Australian dollar increased by about 0.5% to $0.6546, its highest level since August.
In line with expectations, China maintained its monthly benchmark lending rates on Monday in Asia, keeping policymakers waiting to assess the impact of earlier stimulus measures on credit demand while a weaker yuan continued to restrict additional monetary easing. Following the country’s central bank setting the currency mid-point at its highest level since August 11, the yuan saw some support.
The offshore yuan saw a similar upsurge, rising about 0.6% to an over three-month high of 7.1745 per dollar, while the onshore yuan increased by 0.5% to a high of 7.1753 per dollar. A faltering economic recovery in China and fragile investor sentiment have continued to put pressure on the yuan, which has dropped nearly 4% against the dollar this year in the onshore market.
- Published By Team Genuine Reporter