© Reuters. A bank employee counts U.S. dollar bills at a Kasikornbank in Bangkok, Thailand January 26, 2023. REUTERS/Athit Perawongmetha/File Photo
By Tom Westbrook
SINGAPORE (Reuters) – The dollar was on the defensive and traded to multi-month lows against the euro and a handful of other major currencies on Tuesday, as investors expect a decline in US interest rates next year and see it as a signal to sell the dollar. dollar in anticipation.
Moves were modest in early Asian trading, but fell below their 200-day moving average on Monday as a rally in the yuan sparked a new round of broad-based weakness.
The index, which measures the dollar against a basket of six major currencies, fell 1.9% last week alongside a strong rally in U.S. Treasuries, and lost another 0.5% overnight. next day at 103.44.
The euro touched a three-month high of $1.0952 on Monday, with a little help from leading European Central Bank member and reliable hawk Pierre Wunsch, pushing back against market expectations of a rate cut as soon as April .
The yuan also hit a three-month high against the dollar on Monday, with the central bank guiding it higher. The Australian and New Zealand dollars followed suit.
“The dollar continues to struggle, with the dollar index falling below 104 on Friday and (now) below 103.5… as markets decide the Fed is done,” analysts at ANZ in a note.
“Given the overvaluation of (the index), the gravitational pull back toward fair value will likely be an important theme if markets continue to take a relaxed view of the Fed’s policy direction.”
On Monday, the Conference Board’s October leading economic indicator, a gauge of the U.S. recession, showed a decline of 0.8%, its 19th consecutive monthly decline. The focus will then shift to the minutes of the Federal Reserve meeting scheduled for later Tuesday.
Markets have all but ruled out the risk of a further hike in December or next year, and imply a one in four chance of easing from March. Futures also imply cuts of about 90 basis points for 2024, down from 77 basis points before the release of a benign U.S. inflation report in October that rattled markets.
On Tuesday morning, in rare offshore trading, the yuan maintained its gains at 7.1640 per dollar. [CNY/]
The Australian dollar strengthened slightly to $0.6561, just below Monday’s three-month high of $0.6564. The New Zealand dollar remained stable at $0.6040. [AUD/]
Even the yen hit a seven-week high of 148.1 per dollar overnight and stabilized at 148.3 on Tuesday.
The yen has been out of favor this year, falling 11.6% against the dollar, as US interest rates climbed while Japan stuck to ultra-accommodative policy, opening up a wide spread between government bond yields. The fact that it rebounded almost 3% in a week was striking, especially since positioning data showed that short positions in the yen actually surged last week.
“We are in an unfavorable environment for the dollar and after a long period where it has reigned supreme, any change must be accompanied by at least temporary volatility,” said Kit Juckes, strategist at Société Générale (OTC: ), in a note highlighting the positioning changes.
“Maybe it all adds up and the euro and sterling run out of steam at some point, while the yen, AUD and NZD last longer,” he said, as short positions tightened.
The calendar is reasonably empty as the week heads into the U.S. Thanksgiving holiday on Thursday. In addition to the Fed minutes, data on housing in the United States and inflation in Canada are expected later Tuesday, as is a speech from ECB President Christine Lagarde.
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Prices offers in foreign currencies at 0000 GMT
Description RIC Last close in the United States Percentage change since the beginning of the year Pct High offer Low offer
$1.0945 $1.0941 +0.04% +2.15% +1.0947 +1.0942
148.3700 148.3200 +0.04% +13.06% +148.3750 +148.2500
162.38 162.31 +0.04% +15.74% +162.4000 +162.2300
0.8844 0.8850 +0.00% -4.29% +0.8847 +0.0000
1.2508 1.2505 +0.03% +3.44% +1.2510 +1.2505
1.3726 1.3725 +0.01% +1.31% +1.3726 +1.3724
0.6560 0.6557 +0.06% -3.75% +0.6564 +0.6551
Dollar/Dollar 0.6039 0.6038 +0.02% -4.89% +0.6041 +0.6036
BOJ Tokyo Forex Market Information