Dollar stays stable in early trade

21 Dec 2023 , 10:37 AM

On Thursday, the dollar stabilized as investors sought shelter following the abrupt conclusion of a robust surge in U.S. stocks, while the pound was negatively impacted by an unanticipated decline in British inflation.

After British inflation fell short of expectations in October, hitting an annual 3.9%, the lowest level in two years, the pound saw its biggest overnight decline in two months.

By May, traders were rushing to lower interest rates, and the value of the euro fell 0.7% to $1.2638.

In other places, aggressive selling during Wall Street’s last hour of trading in stocks caused a wave of risk aversion to sweep across the markets, pushing the previously under pressure dollar higher from its lows.

The New Zealand and Australian dollars declined from their five-month highs. The Australian dollar last traded at $0.6714, having reached its highest level since July one day earlier at $0.6779. At $0.6257, the kiwi was exchanged. 

It stayed steady at $1.0943 for the euro. After losing ground on Tuesday as the Bank of Japan maintained its ultra-easy policy settings, the yen found support at 143.5 per dollar.

The U.S. core personal consumption expenditure (PCE) index, which analysts predict will increase 0.2% in November and see annual inflation drop to 3.3%—its lowest level since 2021—will be the next focus for currency markets on Friday.

Analysts believe that since the risk-reward curve is skewed toward the negative and inflation is slowing down, the Fed will need to loosen policy in order to keep real rates from rising.

However, some caution is beginning to show, with 150 basis points of cuts already factored in for next year, a sharp rally in the bond market, and the dollar index down more than 4% from its peak in early November.

Early on Thursday in Asia trade, the dollar index, which has lost 1% of its value this year, remained stable at 102.37. In New York, ten-year US Treasury yields fell to 3.847%, their lowest level in seven months.

China’s yuan declined overnight in offshore trade due to the strengthening dollar and traders’ perception of China’s continued loose monetary policy.

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