Dollar defensive as investors assess the outlook for US rates

24 Nov 2023 , 09:42 AM

The euro maintained its overnight gains as statistics suggested that the euro zone’s recession may be abating, while the dollar was constrained on Friday due to uncertainties about the direction of US interest rates.

Due to the fact that U.S. markets are closed on Thursday and that trading will be shortened on Friday in observance of Thanksgiving, currencies are likely to move narrowly but volatilely as little liquidity is predicted.

The dollar index, which compares the value of the US dollar to six other currencies, decreased by 0.029% to 103.73, remaining near the two-and-a-half month low of 103.17 that it had previously struck this week.

Due to growing anticipation that the Federal Reserve may start lowering interest rates next year and is finished hiking rates, the index is down 2.8% for the month and is headed for its worst monthly performance in a year.

According to CME Group’s FedWatch tool, futures now indicate a 26% chance that the Fed would lower its target rate at the March 2024 policy meeting, reflecting the fact that markets have reduced their expectations of a rate cut in 2024. In contrast, last week’s likelihood was 33%.

The euro was up 0.16% overnight to $1.0904 after a number of preliminary polls suggested that Germany’s recession may be milder than anticipated. This helped to counteract a negative reading of economic activity in France.

In the meantime, October saw a modest increase in Japan’s core consumer price increases, which had eased the previous month. This strengthened investors’ belief that the Bank of Japan (BOJ) would soon be forced to reduce monetary assistance due to persistent inflation.

The value of the Japanese yen rose 0.04% to $149.49. The Asian currency is up 1.5% for the month and has gradually recovered from the nearly 33-year low of 151.92 it set at the beginning of last week.

A business survey released on Friday revealed that Japan’s factory production contracted in November for the sixth consecutive month, while the service sector had minor increase. These figures underscore the fragility of the economy in the face of inflation and tepid demand.

At $1.2539, sterling was up 0.05% for the day. The kiwi increased 0.07% to $0.605, while the Australian dollar advanced 0.14% to $0.657.

Following Japan’s holiday, cash Treasuries resumed trading in Asia on Thursday, with the yield on 10-year Treasury notes rising 2.9 basis points to 4.445%.

The 30-year Treasury bond’s yield increased by 2.8 basis points to 4.576%.

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