Dollar hovers near seven-month lows after jobs data.
On Monday, the U.S. dollar fell to its lowest level in seven months against major currencies. Data suggested that the Federal Reserve might slow down its rate increases while China’s reopening of its borders could boost riskier currencies.
China’s offshore currency yuan surpassed the U.S. dollar for the fifth time in five months, and the Australian and New Zealand currencies – which are generally considered more liquid proxies for China’s currency – rose sharply.
In the three months ended 2022, the dollar suffered its largest quarterly loss in 12 years. This was due to investors’ belief that the Fed will not raise rates above 5% from its current range of 4.25-4.50% as inflation and growth slow down.
Two separate reports released Friday showed an economy that is growing, adding jobs, but is in recession territory overall. This led traders to sell the dollar and exchange it for a variety of currencies.
Friday’s monthly employment report revealed an increase in non-farm payrolls and slower wage growth. This is good news for the U.S. central banks.
The Institute for Supply Management also reported that activity in the services sector contracted for only the second time in 2 1/2 years in December. The ISM’s PMI non-manufacturing was at 49.6, the lowest since 2009. This excludes the collapse in the coronavirus pandemic of 2020.
Adam Cole, RBC’s head of currency strategy Adam Cole stated that “where that number came in” was marginally below the 50 breakeven point. This is about as negative as the dollar can get.
“If it were 5 percentage points lower, that would be clearly deep recession territory. This historically has been associated with a stronger Dollar against all other currencies than the yen or the Swiss Franc.
Investors are still focused on the outlook for price pressures, despite consumer inflation data due this week.
Michael Hewson, chief market strategist at CMC, stated that Wednesday’s U.S. CPI figures for December are likely to provide the next clue as to the location of the terminal rate.
There will be further speculation about the pace of price increases, but a slowdown in core prices. The main focus should be on how core prices are doing and less on headline numbers, which are expected to continue falling sharply.
Dollar hovers near seven-month lows after jobs data – https://t.co/qawWY1DiET
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After four consecutive 75-basis point increases last year, the Fed increased interest rates by 50 basis marks last month. However, it said that it expected to keep rates higher longer to control inflation.
Investors believe that a 25-basis point increase is the most likely outcome of Fed Fund Futures.
The dollar index, which measures the greenback’s value against six major currencies, fell 0.2% to 103.54, after falling 1.15% Friday as investors moved into more risky assets.
Sterling gained 0.422% to $1.2144, a continuation of Friday’s 1.5% rally. In addition to Friday’s 1.17 percent increase, the euro rose 0.4% at $1.0687.
The Japanese yen, which fell 0.1% to 132.20 per $1, was the exception among major currencies.
China continued to relax many of its zero-COVID restrictions around movement, as it reopened its borders .
China’s offshore currency yuan rose to five-month highs against US dollars on Monday, as optimism about an economic recovery was evident.
The Australian dollar rose as high as 1.03% to $0.695, which is its highest value against the U.S. currency. Meanwhile, the kiwi was up 0.51% to $0.638, hovering around its peak in three weeks.
The Brazilian real dropped around 1% against the US dollar after supporters of the far-right former president Jair Bolsonaro were detained after they invaded the country’s Congress and presidential palace.