Forex: How Global Currencies Swing against US Dollar
US dollar keeps its global position against its rival peers in the global currency markets. US Fed has continue to keep market guessing about when next rate cut would happen.
The U.S. dollar is showing signs of fatigue amid weaker U.S. economic activity, buoyant risk appetite, and China and Japan’s FX policies inhibiting local currency weakness, says Paul Mackel, global head of FX research at HSBC.
Through most of the past year, USD has tracked changes in Fed rate expectations closely but the ability to price out additional cuts could be difficult unless the surprise scenario of the Fed needing to hike comes to fruition, he says in a note.
In the current quiet conditions, financial markets are “very gently” questioning whether the European Central Bank needs to cut rates three times this year after all, said ING.
Markets now price 68bps of easing, having spent the majority of 2024 expecting more than 75bps, wrote the bank in a note to clients. Three rate cuts this year remain ING’s call, but the risk is two.
The Eurozone data calendar will probably not have a big say in that pricing this week, although markets will be interested in whether the provisional release of Q1 Eurozone gross domestic product for this year does get revised from its encouraging 0.3% quarter-on-quarter level, stated the bank. That revision will be released on Wednesday.
Lower volatility conditions are providing a little support to USDEUR, but it will be the United States price data that will determine whether USDEUR can sustain a break above 1.0800 this week, according to ING.
Sterling continues to witness a stop-start sell-off, where Friday’s release of a stronger-than-expected Q1 GDP figure for 2024 managed to give sterling some support. ING doubted this better-than-expected reading has too much impact on Bank of England thinking — beyond perhaps giving it some room for patience on policy.
The bank retained its downside bias for sterling over the coming quarters. The highlight of the United Kingdom calendar this week is the March jobs data released on Tuesday, added ING.
However, the BoE has downplayed the importance of these figures and the timing of the 2024 BoE easing cycle seems to hang entirely on the release of the UK April services consumer price index on May 22. Additionally on Tuesday, markets will want to see whether BoE Chief Economist Huw Pill has any fresh thoughts on the timing of the easing cycle.
ING expected EURGBP to remain well supported in the 0.8550/75 area now. Yen futures data from the CFTC showed non-commercial short positions have fallen sharply from the 179,919 contracts on April 23, which was the most since June 2007.
The dollar was holding at 155.87 yen , after touching its highest since May 2 at 155.965. The yen was briefly supported when the Bank of Japan sent a hawkish signal by cutting its offer amount for a segment of Japanese government bonds in the Asian morning.
China’s offshore yuan eased against USD by 0.1% to 7.2412 while the onshore yuan fell to its lowest since April 30 at 7.2385, as traders waited for the United States to announce new China tariffs.
The Chinese central bank said over the weekend that new bank lending fell more than expected in April and broad credit growth hit a record low. Separate data on Saturday showed Chinese consumer prices rose in April while producer prices extended declines.
The Indian rupee closed marginally lower after a range-bound trading session on Monday, tracking a decline in most regional peers ahead of data that could help gauge the timing of a policy reversal by the Federal Reserve.
The rupee ended at 83.53 to the U.S. dollar, down from 83.50 in the previous session. The domestic unit traded in a narrow four-paise range in Monday’s session.
Major Asian currencies fell 0.1% to 0.7% to begin the week ahead of U.S. inflation data, due Wednesday. The print is expected to offer cues on when the Fed could deliver a rate cut this year and by how much.
“With (U.S.) inflation levels remaining stubbornly high, the core CPI figure will play a pivotal role in shaping expectations regarding the future trajectory of U.S. interest rate cuts,” said Sugandha Sachdeva, founder of SS Wealth Street, a New Delhi-based research firm.
Economists are expecting a 0.3% month-on-month rise in the core measure. Markets are pricing in around an 80% chance of a rate cut by the Fed’s September meeting, with about 40 basis points (bps) of cuts in total expected in 2024, LSEG data showed.
Uncertainty around Indian elections has also kept investors cautious, as the comparatively low voter turnout so far has prompted worries that Prime Minister Narendra Modi’s party may not achieve the decisive victory that opinion polls had predicted.
Foreign investors took out more than $2 billion from Indian equities last week amid the election uncertainty. However, likely intervention from the Reserve Bank of India (RBI) is leading to stability in the rupee, Sachdeva said, pegging the rupee in an 83.20-83.70 zone in the coming sessions. GBP Outlook Hinges on Inflation, Wage Data – Goldman Sachs
