The dollar index dropped over 1 per cent last week, its heaviest decline since mid-July and reached a six-week low
Major global currencies were steady early on Monday with investors preparing for the U.S. dollar to extend declines from late last week after the Fed lowered its hawkish stance.
The dollar index was flat at 105.07 and the euro at $1.0727. The dollar index dropped over 1 per cent last week, its heaviest decline since mid-July and reached a six-week low.
World stocks too had their strongest week in a year as expectations the Federal Reserve was done hiking rates gathered steam.
Other indicators like weakness in U.S. jobs data, softer manufacturing data from around the world and a drop in longer dated Treasury yields also hurt the dollar, while stoking rallies in sterling, the Aussie dollar and causing the yen to rise from the weaker side of 150-per-dollar.
We always say bad news is good news, said Tina Teng, a market analyst at CMC Markets in Auckland. So it is good then there is expectation for the Federal Reserve and other central banks to halt the rate hike cycle sooner.
She expected the dollar to remain weaker through November.
Nevertheless, analysts at J.P.Morgan Securities sounded cautious.
Dollar bears would be well served to temper their enthusiasm, they stated. This is because, the pillars of US dollar strength have diluted, but not entirely faded and are likely to eventually re-emerge over the medium-term as USD-supportive factors.
Furthermore, besides more evidence of a slowing U.S. economy, J.P.Morgan analysts say a sustained dollar selloff needs signs of improvement in the euro zone, China and other regions which it says are “still tenuous”.
Futures markets rose to imply a 90 per cent possibility the Fed was done hiking, and an 86 per cent possibility the first policy easing would come in June.
Markets also imply around an 80 per cent probability the ECB will be cutting rates by April, while the BoE is seen easing in August.
The Japanese yen dropped 0.15 per cent to 149.58 per dollar. CMC Markets’ Teng said the turnaround in the dollar’s direction and the yen’s recovery from lows last week indicated Japanese authorities probably need not intervene in the currency.
The yen hit 151.74 per dollar last week, edging close to last October’s lows that spurred several rounds of dollar-selling intervention by the BoJ.
Sterling was last trading steady at $1.2368. Britain’s GDP data for Q4 is due this week and, while sterling rallied strongly last week in a market that is heavily short the currency, it is still nearly 6 per cent lower in four months.
The decline in the dollar and yields helped underpin gold at $1,990 , within striking distance of the recent five-month high of $2,009.
