FX Signals on US Dollar slips before expected Fed rate hike

NEW YORK (Reuters) – The dollar fell against a basket of currencies on Wednesday ahead of the outcome of a Federal Reserve meeting, as investors evaluated how much expected U.S. central bank hawkishness is already priced into the greenback forex telegram channel


TOKYO (Reuters) – The U.S. dollar was headed for its worst week since early February against major peers on Friday, weighed down by a retreat in Treasury yields and fatigue after the currency’s breathless 10%, 14-week surge.

The dollar index, which measures it against six major rivals, tried to claw back some ground into the weekend, edging up 0.05% to 102.96, but remained 1.42% lower for the week, on track to snap a six-week winning run. Last Friday, it had soared to the highest since January 2003 at 105.01.

Even with global stocks sliding this week amid risks to growth from aggressive monetary tightening – led by the Federal Reserve – and China’s strict lockdowns to quash a COVID-19 outbreak, the dollar’s appeal as a haven was eclipsed overnight by a decline in U.S. yields as investors rushed for the safety of Treasury bonds.

The benchmark 10-year Treasury yield sank to a more than three-week low of 2.772% on Thursday, from a 3 1/2-year high of over 3.2% earlier this month.

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“The dollar was ripe for a pullback,” Edward Moya, senior analyst with OANDA, wrote in a note to clients. “Across the board weakness might continue a while longer.”

Other safe-haven currencies continued to rally overnight, as a key index of global equities headed for a seventh weekly decline, its longest ever.

Asian stocks recovered some ground on Friday though, buoyed by China’s cut to a key lending benchmark to cushion its economic slowdown. [MKTS/GLOB]

The yen ticked up slightly on Friday, headed for a second-straight weekly advance, with the dollar dropping 0.84% to 128.13 yen over the period.

The Swiss franc headed for its best week since March 2020, with the dollar falling 3.1% since last Friday to 0.97070 franc.

Concerns are growing that the Fed and other central banks have fallen behind the curve in combating super-hot inflation, and will need to be ever more aggressive in tightening policy, inflicting pain on the economy as a consequence.

The war in Ukraine shows no sign of abating either, darkening the outlook for commodity price-driven inflation.

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Australia’s currency slipped on Friday though, down 0.35% to $0.7023, after it surged 1.33% the previous session.

“Aussie benefited disproportionately yesterday from the China news, so I think there’s just a bit of an unwind of that, maybe some positioning going on,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia (OTC:CMWAY).

New Zealand’s kiwi though held all of the previous day’s 1.41% jump, ticking up a bit more to $0.6385. The Reserve Bank of New Zealand sets policy next Wednesday, with expectations for another half-point increase to the key rate.

The euro edged 0.1% lower on Friday to $1.05725, but was still on course for a 1.56% weekly gain.

Sterling slipped 0.11% to $1.2457, but was up 1.49% for the week, its best showing since late 2020.

Westpac analysts warned not to count the dollar out, even if its rally was “losing some of its vitality”.

“It’s still far too early to call a long-term peak, amid unsettled global market conditions and a resolute Fed,” the Australian bank’s analysts wrote in a research note, recommending buying on dips to the 102s and targeting 105 multi-week.

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The Fed is expected to hike rates by 50 basis points, which would be the largest increase in two decades, and announce plans to reduce its $9 trillion balance sheet as it tackles inflation rising at the fastest pace in 40 years.

Comments by Fed Chairman Jerome Powell on Crypto at the conclusion of the meeting will be scrutinized for signals on how the U.S. central bank will balance the need to stem rising price pressures against weakening growth if the economy stutters.

“Chair Powell’s post-decision press conference will be key. If he shows any hints of dovishness, markets will take yields and the dollar lower,” Win Thin, global head of currency strategy at Brown Brothers Harriman, said in a report. crypto signals

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“That said, we see no reason for Powell to hedge his bets right now and so we expect full speed ahead from the Fed,” he added.

The dollar index was last at 103.24, down 0.16% on the day. It reached 103.93 on Thursday, the highest since Dec. 2002.

Fed funds futures traders are pricing for the Fed’s benchmark rate to increase to 2.96% by year-end, from 0.33% now.

The Fed is expected to take a more hawkish approach to monetary policy than its peers, with Europe struggling from weaker growth and energy disruptions due to sanctions imposed on Russia after its invasion of Ukraine.

The EU proposed its toughest sanctions yet against Russia on Wednesday, including a phased oil embargo.

The euro rose to $1.0551, up 0.30%, after dropping to $1.0470 on Thursday, the lowest since January 2017.

The Aussie gained 0.63% to $0.7141.

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FX Signals on US Dollar slips before expected Fed rate hike