Jan 25 (Reuters) – The dollar index fell 0.25% as it stalked key support levels against other major currencies that might break if U.S. data on Thursday and Friday reinforce the view the Fed has only two 25bp hikes left before cutting rates later this year.
That backdrop remains dollar-negative as markets project 140bp and 94bp of ECB and BoE hikes, euro zone data continues a forecast-beating streak and U.S. economic numbers — with the exception of largely still tight labor market data — heightens recession fears and lowers inflation expectations.
Investors will pore over the upcoming barrage of U.S. data, with particular interest in Friday’s core PCE reading, the Fed’s main inflation barometer. Core PCE year-on-year is forecast at 4.4% from 4.7% in November, which would be the lowest reading since November 2021 .
The BoC hiked rates by 25bp and signaled it would now pause after raising borrowing costs from 0.25% to 4.5% — the same as the Fed. Some might see the BoC’s pause is an opening for the Fed to do the same sometime soon.
EUR/USD rose 0.24%, respecting the event risk into week’s end and next week’s Fed and ECB meetings, as well as the midpoint of its pandemic plunge now nearby at 1.0939. The drum beat of ECB speakers reiterating the need for further substantial rate hikes persists , underpinning the tightening of 2-year bund-Treasury yields spreads.
USD/JPY fell 0.5%, on lower Treasury yields, with key supports eyed if U.S. data favor the Fed flipping from rate hikes to cuts by midyear.
Sterling rose 0.48% despite below-forecast UK PPI, again attracting dip buyers looking for a breakout above 1.2446/475 peaks by 61.8% of 2022’s slide and another nearly 1% rise in BoE rates.
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(Editing by Burton Frierson Randolph Donney is a Reuters market analyst. The views expressed are his own.)
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