The dollar stumbles to its lowest level in more than two months as markets eye Fed cuts

The dollar stumbles to its lowest level in more than two months as markets eye Fed cuts

US dollar and euro banknotes are shown in this illustration taken on July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo Get License Rights

SINGAPORE (Reuters) – The dollar fell to a two-month low on Monday, continuing its downtrend from last week, as traders reaffirmed their belief that U.S. interest rates have peaked and turned their attention to when the Federal Reserve could start cutting interest rates.

The yuan recorded its highest levels in three months in internal and external markets, with support from the Chinese central bank, while the Australian dollar similarly rose to its highest level in three months against the declining US currency.

The dollar index in Asian trade bottomed at 103.64, its weakest level since September 1, extending its nearly 2% decline from last week – the biggest weekly decline since July.

Markets have priced in the risks of an interest rate hike by the Federal Reserve following a series of weaker-than-expected US economic indicators last week, especially after an inflation reading that came in below estimates.

The focus now turns to how quickly the first rate cuts can take place, with futures priced at a 30% chance the Fed will start cutting rates as early as next March, according to the CME FedWatch tool.

“Market pricing of FOMC policy is likely to remain fairly steady, so the dollar should have very few catalysts to move it this week,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia (CBA). “If we see risk appetite improving again, the dollar could certainly weaken further.”

Against the weaker dollar, the euro rose to its highest level in more than two months at $1.0924, ahead of preliminary readings of the Eurozone Purchasing Managers’ Index scheduled for release later this week.

The pound sterling rose in recent trading by 0.1 percent to $1.2475.

Minutes from the Fed’s latest meeting are also scheduled to be released this week, which will give some color to policymakers’ thinking as they kept interest rates steady for a second time earlier this month.

“The FOMC minutes may be coined as a ‘Fed pivot,’ highlighting the rise in risk appetite in favor of US Treasury yields and the US dollar, along with asset buying,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank. dangerous”. .

“The upshot is that the FOMC minutes may overstate the increasingly dovish shifts and the likelihood of the Fed’s intended pivot signals.”

The US currency’s decline brought some relief to the Japanese yen, which remained on the stronger side at 150 yen to the dollar, and recently rose 0.4% to 149 yen to the dollar.

The highly risk-sensitive Australian dollar rose about 0.5 percent to $0.6546, its strongest level since August, while the New Zealand dollar increased 0.52 percent to $0.60235.

In Asia, China on Monday left key lending rates unchanged at a monthly hold, in line with expectations, as a weak yuan continued to limit further monetary easing and policymakers waited to see the effects of previous stimulus on credit demand.

The yuan found some support after China’s central bank set the currency at the midpoint at its strongest level since August 11.

The local yuan rose 0.5 percent to the highest level in more than three months at 7.1753 to the dollar, while the overseas yuan similarly received a boost and jumped about 0.6 percent to the highest level in more than three months at 7.1745 to the dollar.

The yuan, which has fallen nearly 4% against the dollar this year in the local market, remains under pressure due to China’s faltering economic recovery and as investor sentiment remains fragile.

“I think the theme of China’s soft economic recovery will continue for a while,” CBA’s Kong said.

“Until we get a more pronounced recovery in the Chinese economy, I think that will be a headwind for the yuan and the Australian and New Zealand dollars in the near term.”

Ray Wei reports. Edited by Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

Obtaining licensing rightsopens a new tab

You may also like...

Leave a Reply