Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Dollar edges higher, but set for sharp weekly loss as inflationary pressures ease

Published 11/17/2023, 03:03 AM
© Reuters.
- - The U.S. dollar edged higher in early European trade Friday, but was heading for a sharp weekly loss after cooling inflation spurred growing bets that the Federal Reserve has completed its series of rate hikes.

At 03:00 ET (08:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 104.374, still on course for a weekly loss of around 1.3%.

Dollar set for hefty weekly loss

The dollar has weakened this week growing expectations that inflation is in retreat and interest rate increases by the Federal Reserve are a thing of the past.

Tuesday’s drop in U.S. consumer prices started the ball rolling, but oil slipping to four-month lows and news from Walmart (NYSE:WMT) on Thursday that it will cut prices to help struggling consumers in the holiday quarter have added to the disinflationary pressures.

“Confidence that the Fed tightening cycle is over should be positive for the rest of the world currencies - especially those that are very sensitive to higher interest rates,” said analysts at ING, in a note.

“Yet with overnight rates in the US at 5.4%, the dollar is an expensive sell and the bar is high to invest elsewhere. That is why… the dollar bear trend is going to take some time to build and its more intense period may not be until 2Q24.”

There are a number of Fed speakers scheduled to speak later in the session, and traders will look for how hawkish they appear to be given the change in market tone. 

Sterling slips after weak U.K. retail sales

In Europe, GBP/USD fell 0.2% to 1.2377, weakening after data showed U.K. retail sales slumped 0.3% on the month in October, an annual fall of 2.7%, as British shoppers continued to struggle from the combination of higher interest rates and still elevated inflation.

U.K. CPI plunged to 4.6% on an annual basis in October, from 6.7% in September, data showed earlier this week. 

This was the largest fall  in the annual CPI rate from one month to the next since April 1992, but it still remains among the highest in the developed world, and the Bank of England has sought to stress that it is nowhere near cutting interest rates from their 15-year peak, even as the economy flat-lines close to a recession.

EUR/USD fell 0.1% to 1.0839, but is set to gain around 1.5% this week, its largest weekly increase since mid-July. 

ECB President Christine Lagarde is set to speak at the European Banking Congress in Frankfurt later in the session, and her comments will be parsed carefully for clues of the intentions of policy makers regarding interest rates after the central bank paused its cycle of hikes last month. 

Yen benefits from dollar weakness

In Asia, USD/JPY traded 0.2% lower at 150.44, with the yen among the biggest beneficiaries of recent dollar weakness, as this pair is on track to drop 0.7% this week - its best weekly gain in over four months. 

But Bank of Japan Governor Kazuo Ueda on Friday stressed on the need to maintain an ultra-dovish stance, presenting little near-term relief for the yen

USD/CNY rose 0.1% to 7.2464, with the yuan recovering from the one-year low seen earlier in the week, helped by data showing some signs of resilience in the Chinese economy.

Focus is now on the People’s Bank of China, which is set to decide on its benchmark loan prime rate on Monday. The bank is expected to keep rates at record lows, as it struggles to maintain a balance between shoring up economic growth and stemming weakness in the yuan. 


Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.