© Reuters. FILE PHOTO: A U.S. Dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration/File Photo/File Photo
By Herbert Lash
NEW YORK (Reuters) – The dollar weakened on Friday after U.S. labor data for February showed slower wage growth, suggesting an easing of inflation pressures may keep the Federal Reserve’s pace of interest rate hikes modest and thereby reduce the greenback’s appeal.
The U.S. economy added jobs at a brisk clip in February, but slower wage growth and a rise in the unemployment rate prompted financial markets to dial back expectations for a 50-basis point rate hike when Fed policymakers meet in two weeks.
Congressional testimony earlier in the week by Fed Chairman Jerome Powell was seen as hawkish and strengthened the dollar as Treasuries pay more in yield than other government debt.
The dollar slid against all major currencies, but was essentially flat against the Canadian dollar. The , a basket of trading currencies, fell 0.618%.
Adding to the plunge in Treasury yields was the closing of SVB Financial Group, the largest bank failure since the financial crisis, as California regulators moved quickly to protect depositors at the startup-focused lender.
The yield on benchmark fell more than 22 basis points to under 3.70% in the biggest single-day drop in four months. Bond yields move opposite to their price.
“There is a significant, in my opinion anyway, safe-haven bid going on,” said Kevin Flanagan, head of fixed income strategy at WisdomTree. “There are concerns about potential banking stress.”
Average hourly earnings for all private workers rose 0.2% versus 0.3% in January, and lifted the year-on-year figure to 4.6%. Economists expected hourly earnings to rise 0.3% in February, which would have raised wages by 4.7% annually.
(Graphic: Wage growth is slowing – https://www.reuters.com/graphics/USA-ECONOMY/JOBS-WAGES/gkvlwlonqpb/chart.png)
The dollar may be range-bound as slowing inflation to the Fed’s target of 2% is likely to be bumpy, said Joe Manimbo, senior market analyst at Convera in Washington.
“When the market revises up expectations for peak rates, we see the dollar take two steps up. But once the dust settles, we see the dollar take a step back,” Manimbo said.
“The market already anticipates that the Fed is going to pause this year, but exactly when it’s just unknown.”
Futures for fed funds slid to a 41% chance of a 50 bps hike when Fed policymakers meet on March 22, compared with a 71.6% probability a week ago, according to CME’s FedWatch Tool.
The market got ahead of itself on the prospect of a 50 basis-point hike at the next Fed meeting, said Dec Mullarkey, managing director of investment strategy and asset location at SLC Management in Boston.
“Rate hikes of 25 basis points at this point make more sense as it allows the Fed to keep tightening but extend the period over which they do it to allow the data to catch up,” he said.
The euro rose 0.57% to $1.064 and Sterling traded at $1.2024, up 0.83% on the day.
The “quite important” consumer price index (CPI) scheduled for release on March 14 is now front and center, said Andrzej Skiba, head of the BlueBay U.S. fixed income team at RBC Global Asset Management in New York.
“The focus now moves on to the CPI print and the overall financial conditions given what’s happening in the banking space in the U.S.,” he said.
The Japanese yen strengthened 1.01% to 134.79 per dollar.
(Graphic: Global currencies vs. dollar IMG – https://www.reuters.com/graphics/GLOBAL-FOREX/0100301V4V8/GLOBAL-FOREX.jpg)
The dollar earlier jumped against the yen in a knee-jerk move after the Bank of Japan kept policy unchanged in Governor Haruhiko Kuroda’s last policy meeting before he steps down in April.
While the “no surprises” decision was expected by most market-watchers, many see the days of the BOJ’s bond yield curve control (YCC) as numbered, which led to some pricing in a slim chance of a policy tweak at Kuroda’s last policy meeting.
Currency bid prices at 3:45PM (2045 GMT)
Description RIC Last U.S. Pct Change YTD Pct High Bid Low Bid
Dollar index 104.6000 105.2500 -0.62% 1.073% +105.3600 +104.0200
Euro/Dollar $1.0640 $1.0583 +0.54% -0.70% +$1.0702 +$1.0574
Dollar/Yen 134.7850 136.1250 -0.98% +2.81% +136.9850 +134.1150
Euro/Yen 143.42 144.06 -0.44% +2.22% +145.1000 +143.3600
Dollar/Swiss 0.9214 0.9323 -1.16% -0.35% +0.9331 +0.9175
Sterling/Dolla $1.2023 $1.1927 +0.82% -0.57% +$1.2113 +$1.1910
Dollar/Canadia 1.3832 1.3827 +0.04% +2.09% +1.3861 +1.3765
Aussie/Dollar $0.6577 $0.6591 -0.15% -3.46% +$0.6640 +$0.6565
Euro/Swiss 0.9803 0.9867 -0.65% -0.93% +0.9882 +0.9796
Euro/Sterling 0.8848 0.8873 -0.28% +0.05% +0.8891 +0.8822
NZ $0.6130 $0.6102 +0.48% -3.45% +$0.6176 +$0.6091
Dollar/Norway 10.6260 10.6720 -0.57% +8.12% +10.7500 +10.5700
Euro/Norway 11.3175 11.2817 +0.32% +7.85% +11.3684 +11.2356
Dollar/Sweden 10.6977 10.7312 +0.31% +2.79% +10.7785 +10.6100
Euro/Sweden 11.3853 11.3500 +0.31% +2.11% +11.4101 +11.3460
Dollar stabilizes near five-week high ahead of more debt ceiling talks
Investing.com – The U.S. dollar stabilized in early European trade Tuesday, just off a five-week high helped by its safe haven status as the standoff in Washington over the U.S. debt ceiling continued.
At 03:15 ET (07:15 GMT), the , which tracks the greenback against a basket of six other currencies, traded largely flat at 102.250.
The potential for a U.S. default of its debts if a deal is not done to lift the country’s borrowing limit, which Treasury Secretary Janet Yellen reiterated could be hit as soon as June 1, has helped the dollar push higher of late, with traders seeking the greenback given it is often used as a safe haven in times of stress.
The main parties are expected to meet once more later Tuesday, with President Joe Biden expressing confidence a deal can be done, but Republican House of Representatives Speaker Kevin McCarthy said on Monday that the two sides were still far apart.
“Unless we see truly encouraging progress, investors’ fears may keep growing,” said analysts at ING, in a note. “Barring positive news on this end, we think the balance of risks remains tilted to the upside for the dollar for now, which should see safe-haven flows as risk sentiment stays subdued.”
Aside from this, traders are likely to focus on the release of U.S. data for April, which is expected to show sales grew 0.8% on the month in April, an improvement from the dramatic slump of 0.6% last month.
The raised interest rates last week for a 10th straight time, but hinted that it may be about to pause its aggressive policy tightening as it studies incoming economic data and assesses the impact of the tightening to date.
Inflation remained elevated in April, even if slightly lower than the prior month, and a number of Fed officials have said in separate addresses that interest rates were likely to stay higher for longer if prices continue to remain substantially above the Fed’s 2% target.
Elsewhere, rose 0.1% to 1.0880, after bouncing off a five-week low overnight, ahead of the release of preliminary first quarter for the euro zone.
This is expected to show the region barely scraped growth in the first three months of the year, rising 0.1% on the quarter and 1.3% on an annual basis.
Also of interest will be the for May, which is expected to show a deterioration of sentiment in the eurozone’s largest economy.
fell 0.3% to 1.2494 after the U.K. unexpectedly rose to 3.9% in the three months to March, raising the likelihood of the Bank of England pausing its run of increases when it next meets in June.
dropped 0.3% to 135.78, fell 0.3% to 0.6683, while rose 0.2% to 6.9643 with the yuan trading near a two-month low after Chinese data showed and grew less than expected in April.
rose 0.1% to 19.6861 as Turkey’s presidential race heads to a runoff with incumbent Tayyip Erdogan leading his opposition rival.
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Asia FX dips on weak Chinese data, hawkish Fed comments
Investing.com — Most Asian currencies retreated on Tuesday as disappointing Chinese economic data posited a weak outlook for the region’s largest economy, while hawkish comments from Federal Reserve officials also brewed uncertainty over the path of U.S. interest rates.
fell 0.1% and traded near a two-month low after data showed and grew less than expected in April. The readings, which come on the heels of several weak economic indicators earlier this month, point to a staggered recovery in Asia’s largest economy, even after the country relaxed most anti-COVID measures earlier this year.
The weak data also saw markets positioning for a potential 25 basis point rate cut by the People’s Bank next month, which is likely to fuel further weakness in the yuan. The currency was trading just shy of the psychologically important 7 level against the dollar.
Weakness in China spilled over into other Asian currency markets, particularly those with a high trade exposure to the country. The fell 0.1%, while the led losses across Southeast Asia with a 0.3% dip, as traders also locked in recent profits in the currency.
The fell 0.1%, also coming under pressure from a sharp drop in in the face of rising interest rates and worsening economic conditions.
Sentiment towards risk-driven assets was also rattled by a slew of Federal Reserve officials warning that the bank could still act further to bring down stubborn inflation. said in separate addresses that interest rates were likely to stay higher for longer, with some officials also raising the possibility of more interest rate hikes.
The and steadied near a one-month high on Tuesday, after logging small losses in the prior session. But the greenback still strengthened against the by about 0.1%.
The dollar moved little this week as markets hunkered down in anticipation of more U.S. economic signals this week, starting with and due later in the day.
Several more Fed speakers are also lined up for the week, most notably on Friday.
show that markets are still positioning for a pause in the Fed’s rate hike cycle in June. But traders are also factoring in a small chance of a 25 basis point hike.
The prospect of U.S. rates remaining higher for longer bodes poorly for Asian currencies, as the gap between risky and low-risk yields narrows.
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