SINGAPORE, Jan 19 (Reuters) – The dollar headed for a
second weekly gain in a row on Friday as signs of resilience in
the U.S. economy and caution about rate cuts from central
bankers had traders dialling back expectations of swift and
sharp falls in interest rates.
Weekly gains on the risk-sensitive Australian and New
Zealand dollars of 1.6% and 2.3% are set to be the largest since
November and July respectively. Markets price a 57% chance of a
U.S. rate cut in March, down from 75% a week ago.
“The thumping message from U.S. activity data and central
bankers is that markets are too aggressively priced for rate
cuts in 2024, both on timing and in magnitude,” said Westpac’s
head of foreign exchange strategy Richard Franulovich.
“That, and a fresh bout of turbulence across China’s
property and financial markets has the dollar returning to
form.”
The dollar index is up 0.9% to 103.4 on the week and
biggest loser has been the yen, which is now down 5%
for the year so far as data and a deadly earthquake have sapped
confidence the Bank of Japan is about to hike rates.
Data on Friday showed Japan’s core inflation slowed to
2.3% in the year to December, its lowest annual pace since June
2022, taking the pressure off policymakers to make swift moves
and dragging the yen about 0.2% lower to 148.44 per dollar.
“The market’s realisation that rates hikes will not be easy
for the BOJ in the coming months and the coincident repricing of
Fed rate cut risks have already been reflected in the move
higher in dollar/yen,” said Rabobank strategist Jane Foley.
Other currency moves in the Asia session were modest on
Friday, leaving the euro down 0.6% for the week at
$1.0884 and sterling down 0.4% to $1.2705.
The Aussie caught a little support from stabilising
iron ore prices and rose 0.1% to $0.6578. The kiwi was
shaky at $0.6099.
HAWKISH CHORUS
U.S. labour-market data released on Thursday was strong,
with weekly jobless claims dropping to their lowest level in
nearly 1-1/2 years, adding to the pressure on market rate-cut
wagers.
Two-year Treasury yields, which track short-term
interest rate expectations, are up 22 basis points this week to
4.3587%.
Earlier data showed retail sales rose more than expected in
December. Federal Reserve Governor Christopher Waller said on
Tuesday the U.S. economy’s strength gives policymakers
flexibility to move “carefully and slowly”, which traders took
as pushing back at pricing for a speedy fall in rates.
A similarly hawkish chorus from European central bankers has
also dialled back expectations for cuts in Europe, limiting the
euro’s fall on the dollar and driving gains for crosses such as
euro/yen and euro/swissy.
An unexpected rise in British inflation also drove a sharp
pullback in bets on Bank of England interest rate cuts and lent
support to sterling.
Deepening malaise in China’s property markets rattled
investors, who sold mainland shares to multi-year lows and the
currency to an almost two-month low of 7.1999 per
dollar, drawing state-bank buying to support it.
Bitcoin hit a five-week low at $40,484 overnight as
traders have taken profits following the U.S. approval of spot
bitcoin exchange-traded funds. Speculators drove the price 150%
higher during 2023 in anticipation the approval paved the way
for large-scale investors to buy the cryptocurrency.
Investors poured $1.9 billion into nine new bitcoin ETFs in
their first three trading days, but that fell short of some of
the more aggressive estimates for multi-billion inflows on day
one.
(Reporting by Tom Westbrook; Editing by Jamie Freed)
