By Tom Westbrook
SINGAPORE, Nov 21 (Reuters) - The dollar was on the
defensive and trading by multi-month lows on the euro and a
handful of other major currencies on Tuesday, as investors
expect U.S. interest rates to fall next year and see that as a
signal to sell the dollar in anticipation.
Moves were modest in early Asia trade, but the dollar index
had dropped below its 200-day moving average on Monday as a
rally in the yuan spurred another round of broad weakness.
The index, which measures the dollar against a basket
of six major currencies, fell 1.9% last week alongside a big
rally in U.S. Treasures, and lost a further 0.5% overnight to
103.44.
The euro touched a three-month high of $1.0952 on
Monday, with a little help from European Central Bank governing
member and reliable hawk Pierre Wunsch pushing back against
market expectations for rate cuts as soon as April.
The yuan also hit a three-month high on the
dollar on Monday as the central bank guided it higher. The
Australian and New Zealand dollars had followed suit.
"The dollar continues to struggle, with the dollar index
breaking below 104 on Friday and (now) below 103.5 ... as
markets decide that the Fed is done," analysts at ANZ said in a
note.
"Given how overvalued the (index) is, gravitational
(pull)back to fair value is likely to be a strong theme if
markets continue to take a relaxed view of where Fed policy is
going."
On Monday, one U.S. recession gauge, the Conference Board's
October leading economic indicator showed a decline of 0.8%, its
19th straight monthly fall. The next focus is on Federal Reserve
meeting minutes due later on Tuesday.
Markets have all but priced out the risk of a further hike
in December or next year, and imply a 1-in-4 chance of an easing
starting in March. Futures also imply around 90 basis points of
cuts for 2024, up from 77 basis points before a benign October
U.S. inflation report shook markets.
In thin offshore trade on Tuesday morning, the yuan
held its gains at 7.1640 per dollar.
The Australian dollar was marginally firmer at
$0.6561, just below Monday's three-month high of $0.6564. The
New Zealand dollar was steady at $0.6040.
Even the yen rallied to a seven-week high of 148.1
per dollar overnight and steadied at 148.3 on Tuesday.
The yen has been unloved this year, falling 11.6% on the
dollar, as U.S. interest rates have climbed while Japan stuck to
ultra-easy policy - opening a wide gap between government bond
yields. That it has bounced almost 3% in a week has been
eye-catching, especially since positioning data
showed yen shorts actually jumped last week.
"We're in a dollar-unfriendly environment and after a long
period where it reigned supreme any turn must come with at least
temporary volatility," said Societe Generale strategist Kit
Juckes in a note pointing out the positioning shifts.
"Maybe it all adds up to the euro and sterling bounces
running out of steam at some point, while the yen, AUD and NZD
carry on for longer," he said, as shorts get squeezed.
The calendar is reasonably bare as the week heads towards
the U.S. Thanksgiving holiday on Thursday. Besides the Fed
minutes, U.S. housing and Canadian inflation data are due later
on Tuesday, as is a speech from ECB President Christine Lagarde.
========================================================
Currency bid prices at 0000 GMT
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Euro/Dollar
$1.0945 $1.0941 +0.04% +2.15% +1.0947 +1.0942
Dollar/Yen
148.3700 148.3200 +0.04% +13.06% +148.3750 +148.2500
Euro/Yen 162.38 162.31 +0.04% +15.74% +162.4000 +162.2300
Dollar/Swiss
0.8844 0.8850 +0.00% -4.29% +0.8847 +0.0000
Sterling/Dollar
1.2508 1.2505 +0.03% +3.44% +1.2510 +1.2505
Dollar/Canadian
1.3726 1.3725 +0.01% +1.31% +1.3726 +1.3724
Aussie/Dollar
0.6560 0.6557 +0.06% -3.75% +0.6564 +0.6551
NZ
Dollar/Dollar 0.6039 0.6038 +0.02% -4.89% +0.6041 +0.6036
All spots
Tokyo spots
Europe spots
Volatilities
Tokyo Forex market info from BOJ
(Reporting by Tom Westbrook; Editing by Jacqueline Wong)
Dollar nurses losses as US rates seen peaking
November 20, 2023 at 07:15 pm EST
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