© Reuters. FILE PHOTO: U.S. dollar and euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
By Samuel Indyk and Rae Wee
LONDON (Reuters) – The dollar fell to its lowest level in more than two months on Monday, extending a downward trend from last week as traders reaffirmed their belief that U.S. rates have peaked and turned their attention towards when the Federal Reserve could start cutting rates.
The stock bottomed at 103.53 during Asian trading, its lowest level since September 1, extending its decline by almost 2% from last week – the biggest weekly decline since July.
Against the weaker greenback, the euro rose to its highest since August at $1.0937, while the yen firmed to a 5-1/2 week high of 148.63 per dollar.
Markets discounted the risk of further rate hikes from the Fed after a series of weaker-than-expected U.S. economic indicators last week, particularly after a lower-than-estimate inflation reading.
Attention now turns to when the first rate cuts could come, with futures pricing in a 30% chance that the Fed could start cutting rates as early as March, according to the CME FedWatch tool.
“The dollar’s weakness is linked to movements in rate markets, especially after the November Fed meeting and last week’s CPI,” said Dane Cekov, senior foreign exchange strategist at Nordea, while adding that there could be dollar weakness in 2017. the very short term.
“From a technical point of view, the dollar now seems oversold against the euro, we are generally seeing some sort of consolidation.”
Minutes from the Fed’s latest meeting, released Tuesday this week, could provide some color to policymakers’ thinking as they kept rates steady for the second time this month.
Sterling edged up 0.2% to $1.2484, touching a two-month high, while the euro was last bought at $1.0926 ahead of flash PMI figures in the euro zone expected this week and after Moody’s (NYSE:) unexpectedly revised upwards its outlook on the Italian “Baa3”. Portugal’s sovereign rating went from negative to stable and raised Portugal’s rating by two notches to “A3”.
Nordea’s Cekov said this should be positive for the eurozone, as it should lead to a lower risk premium for Italy and Portugal.
“In that sense, it eliminates some of the downside risk for the euro. That’s my first impression,” Cekov said.
The Japanese yen remained on the stronger side of 150 per dollar and rose 0.7% to 148.56.
Elsewhere in Asia, the yuan hit a more than three-month high against the dollar in both domestic and offshore markets as the central bank guided the unit higher and exporters rushed to to convert their dollar revenues into local currency.
The dollar rose 0.5% to a three-month high of 7.1700 per dollar, while the dollar also rose and jumped around 0.6% to a three-month high of 7.1700 per dollar. 1703 for a dollar.
The stock rose 0.6% to $0.6551, after hitting a three-month high of $0.6563 earlier in the session, while the stock gained 0.6% to $0.6031.
China left its key interest rates unchanged at a monthly fix on Monday, matching expectations, as the weak yuan continues to limit further monetary easing and policymakers wait to see the effects of previous stimulus measures on the credit application.
The yuan, which has fallen nearly 4% against the dollar this year in the domestic market, continues to face pressure from China’s faltering economic recovery and as investor confidence remains fragile.
“I think the theme of a weak Chinese economic recovery will persist for a while,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia (OTC:).
“Until we get a more significant recovery in the Chinese economy, I think this will be a headwind for the (yuan), Aussie and kiwi in the near term.”