Dollar rebound extends for third day before Fed's Powell speech
Published: 02:11 PM,Nov 08,2023 | EDITED : 06:11 PM,Nov 08,2023
LONDON: The dollar's rebound extended for a third day on Wednesday after some Federal Reserve policymakers left the door open to further rate hikes. Traders are now eagerly awaiting a speech from Chair Jerome Powell to gain insights into the central bank's future policy path.
The greenback, which hit a seven-week low at the start of the week following the Fed's decision to maintain its policy rate and data indicating a cooling U.S. labor market, has found support. Markets remain uncertain about whether U.S. interest rates have peaked and when the Fed might begin easing monetary conditions.
Futures suggest a roughly 16% chance of another rate hike by January, while there's a 21% chance that rate cuts could come as early as March, according to the CME FedWatch tool.
The U.S. dollar index, which recorded its sharpest weekly fall in about four months last week, rose 0.2% to 105.73 and was on track for a weekly gain.
ING FX strategist Francesco Pesole noted, 'The data side has been very quiet, so the main drivers have been the hawkish comments from Fed speakers, who have been trying to push back against the dovish rate repricing.' On Tuesday, a group of Fed policymakers maintained a balanced tone, considering strong economic data, signs of a slowdown, and the impact of higher long-term bond yields as they deliberate the need for further rate hikes to combat inflation.
Attention now shifts to remarks from Fed Chair Powell later on Wednesday. Matt Simpson, senior market analyst at City Index, suggests, 'There's a risk we could see further U.S. dollar strength today assuming Powell and company continue to remind markets of their 'higher for longer' narrative.' The euro declined 0.2% to $1.0674, partly weighed down by a deteriorating growth outlook in the eurozone. Data on Tuesday revealed that German industrial production fell more than anticipated in September. Wells Fargo economist Nick Bennenbroek commented, 'The mixed outlook for consumer and investment spending leaves the eurozone very close to recession. Regardless of whether the eurozone falls into recession, we see enough growth headwinds to suggest that the European Central Bank's monetary tightening is complete.' The British pound, which had reached a seven-week high above $1.24 against the dollar earlier this week, fell 0.2% to $1.2264.
The Japanese yen weakened once more, moving beyond the 150 per dollar mark, edging closer to levels that could trigger currency intervention. Francesco Pesole from ING noted, 'It's clear we are back in the intervention space. The rate of change has been rather substantial in the last two sessions. If we see the dollar-yen rate rising significantly today, intervention alarm bells will start ringing very loudly.' The yen last stood at 150.66 per dollar, having dropped over 1% since Monday's peak.
The Australian dollar remained relatively stable at $0.6438 after sliding 0.8% in the previous session, marking its largest daily decline in about a month. The Reserve Bank of Australia (RBA) raised interest rates to a 12-year high on Tuesday, ending four months of steady policy. However, they softened their tightening bias to make it more contingent on incoming data. Westpac's chief economist Luci Ellis stated, 'We do not expect that the RBA will follow up with another rate increase in December. The last paragraph of the statement contained a shift in language... This reads as the board hoping not to have to raise rates again, but being very willing to do so if things change. There is not enough new information between now and the December meeting to drive a change in view.'__Reuters
The greenback, which hit a seven-week low at the start of the week following the Fed's decision to maintain its policy rate and data indicating a cooling U.S. labor market, has found support. Markets remain uncertain about whether U.S. interest rates have peaked and when the Fed might begin easing monetary conditions.
Futures suggest a roughly 16% chance of another rate hike by January, while there's a 21% chance that rate cuts could come as early as March, according to the CME FedWatch tool.
The U.S. dollar index, which recorded its sharpest weekly fall in about four months last week, rose 0.2% to 105.73 and was on track for a weekly gain.
ING FX strategist Francesco Pesole noted, 'The data side has been very quiet, so the main drivers have been the hawkish comments from Fed speakers, who have been trying to push back against the dovish rate repricing.' On Tuesday, a group of Fed policymakers maintained a balanced tone, considering strong economic data, signs of a slowdown, and the impact of higher long-term bond yields as they deliberate the need for further rate hikes to combat inflation.
Attention now shifts to remarks from Fed Chair Powell later on Wednesday. Matt Simpson, senior market analyst at City Index, suggests, 'There's a risk we could see further U.S. dollar strength today assuming Powell and company continue to remind markets of their 'higher for longer' narrative.' The euro declined 0.2% to $1.0674, partly weighed down by a deteriorating growth outlook in the eurozone. Data on Tuesday revealed that German industrial production fell more than anticipated in September. Wells Fargo economist Nick Bennenbroek commented, 'The mixed outlook for consumer and investment spending leaves the eurozone very close to recession. Regardless of whether the eurozone falls into recession, we see enough growth headwinds to suggest that the European Central Bank's monetary tightening is complete.' The British pound, which had reached a seven-week high above $1.24 against the dollar earlier this week, fell 0.2% to $1.2264.
The Japanese yen weakened once more, moving beyond the 150 per dollar mark, edging closer to levels that could trigger currency intervention. Francesco Pesole from ING noted, 'It's clear we are back in the intervention space. The rate of change has been rather substantial in the last two sessions. If we see the dollar-yen rate rising significantly today, intervention alarm bells will start ringing very loudly.' The yen last stood at 150.66 per dollar, having dropped over 1% since Monday's peak.
The Australian dollar remained relatively stable at $0.6438 after sliding 0.8% in the previous session, marking its largest daily decline in about a month. The Reserve Bank of Australia (RBA) raised interest rates to a 12-year high on Tuesday, ending four months of steady policy. However, they softened their tightening bias to make it more contingent on incoming data. Westpac's chief economist Luci Ellis stated, 'We do not expect that the RBA will follow up with another rate increase in December. The last paragraph of the statement contained a shift in language... This reads as the board hoping not to have to raise rates again, but being very willing to do so if things change. There is not enough new information between now and the December meeting to drive a change in view.'__Reuters