Dollar stable but still susceptible to Fed guidance

6 Nov 2023 , 09:45 AM

Major world currencies held stable in the early going on Monday, but it appeared as though they would continue the upward trend from last week as the dollar nursed its losses following the Federal Reserve’s dovish comments.

The euro was trading at $1.0726 while the dollar index was unchanged at 105.11. The dollar index fell more than 1% last week, reaching a six-week low and experiencing its biggest decrease since mid-July.

A lower U.S. jobs report, weaker global manufacturing statistics, and a drop in longer-dated Treasury yields are some other signs that have harmed the dollar, but they have also supported rallies in sterling, the Australian dollar, and the yen, which all bounced off the weaker side of 150 per dollar.

GDP and inflation figures from Europe and China’s most recent manufacturing surveys support that.

Treasury yields fell last week following softness in the manufacturing and jobs reports from the United States and Fed Chair Jerome Powell’s remarks on ‘balanced’ risks. In addition, the US government reported fewer increases in long-dated debt auctions than anticipated and lowered its projection for refinancing this quarter.

In just two weeks, 2-year note yields have fallen 25 basis points, while 10-year yields have decreased by half a percentage point and are now at 5-week lows of about 4.59%. The curve’s front end is still significantly inverted.

Futures markets turned, signalling a 90% probability that the Fed had finished raising rates and an 86% probability that the first policy easing would occur as soon as June.

Additionally, markets predict that there is an 80% chance that the European Central Bank will lower interest rates by April, while the Bank of England will likely do the same in August.

The Japanese yen dropped 0.16% against the dollar to trade at 149.60. According to Teng of CMC Markets, the dollar’s recent reversal and the yen’s bounce off last week’s lows indicated that Japanese authorities may not need to intervene in the currency.

On Friday, the yen approached the October lows that prompted the Bank of Japan to intervene with numerous rounds of dollar sales. It closed at 151.74 per dollar.

At $1.2368, sterling was trading steadily as of late. This week is the release of Britain’s fourth-quarter GDP figures. Although the value of the pound has fallen by almost 6% in the last four months, it saw a significant rally last week in a market that is significantly short the currency.

The recent five-month peak of $2,009 is within striking distance of gold, which is currently trading at $1,990 thanks to the decline in the dollar and rates.

At $35,057.20, bitcoin was up 1.23% among cryptocurrencies. The anticipated conclusion of cycles of central bank policy tightening has given the risky asset some momentum.

The possibility of additional spot bitcoin exchange-traded funds (ETFs), which would welcome more investors to the market, has also drawn attention from the cryptocurrency community. Several companies have filed for such a product, yet none has been approved.

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