Dollar Hits 11-week High as Fed Rate Cut Bets Recede

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LONDON/SINGAPORE—The dollar rose to its highest in almost three months against other major currencies on Monday as traders clawed back bets for aggressive rate cuts by the Federal Reserve this year.

The Fed repricing has followed Friday’s blockbuster U.S. jobs report that far exceeded market expectations and sent U.S. bond yields soaring, boosting the country’s currency.

Treasury yields rose further on Monday after Fed Chair Jerome Powell said over the weekend that the central bank could “give it some time” before cutting interest rates.

The dollar index, which tracks the greenback against six other major currencies, rose to 104.3, its highest since Nov. 17, It was last up 0.21 percent at 104.27.

The two-year Treasury yield was last up 6 basis points at 4.433 percent, after jumping 18 bps on Friday.

The euro fell to its lowest since Dec. 11 at $1.0747 and was last down 0.36 percent at $1.0752.

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In an interview with the CBS news show “60 Minutes” that aired on Sunday night and was conducted on Thursday, Mr. Powell said the Fed could be patient in deciding when to cut its benchmark interest rate.

“The prudent thing to do is … to just give it some time and see that the data confirm that inflation is moving down to 2 percent in a sustainable way,” Mr. Powell said.

Charu Chanana, head of FX strategy at Saxo Bank, said: “Reasons for a bullish USD trend continue to multiply … and now markets having to seriously reassess Powell’s pushback to March rate cut pricing.”

Japan’s yen fell to its lowest since early December in early Asia trade at 148.82 per dollar, before steadying to stand at 148.36.

Jane Foley, head of FX strategy at Rabobank, said a weak eurozone economy was also likely weighing on the euro.

“We have stagnation in Germany,” she said. “I think we’re going into a period when it’s going to be really hard for the euro to make significant gains.”

Data on Monday showed that German exports fell more than expected in December due to weak global demand.

Rate Cut Expectations

Fed funds futures now show roughly 120 basis points (bps) worth of easing priced in for the Fed this year, down from about 150 bps at the end of last year.

A March cut is now seen as a roughly 16 percent possibility, down sharply from around 50 percent a week ago.

Sterling was down 0.46 percent to $1.2576, its lowest since Dec. 13, as the dollar rallied.

The pound showed little reaction to revised data that indicated Britain’s unemployment rate was lower than expected at the end of the year.

Elsewhere, China’s central bank continued to use the official guidance fix to keep its currency stable, after setting the midpoint rate for the yuan firmer than Reuters’ estimate.

That supported the onshore yuan slightly, though it still struggled against the stronger dollar to finish the domestic session at 7.1982, the weakest close since Nov. 17.

The main event on the economic calendar is the ISM non-manufacturing survey later in the day, which will give a sense of the health of the U.S. economy in January.

By Harry Robertson and Rae Wee

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