Traders cautious in FX market ahead of key events
2023.03.06 11:28
Traders cautious in FX market ahead of key events
By Kristina Sobol
Budrigannews.com – On Monday, the dollar held its ground as investors awaited testimony from Federal Reserve Chair Jerome Powell ahead of the February jobs report at the end of the week, which is likely to have an impact on how much the U.S. central bank will raise interest rates.
After rebounding from a session low of 104.34, the, which measures the performance of the US currency against six other currencies, was last flat on the day at 104.63. Last week marked the index’s first weekly loss since January.
The Federal Reserve has increased interest rates by 25 basis points in its last two meetings, following jumbo hikes last year. However, investors have been encouraged to believe that the central bank may need to return to half-point rises by a slew of resilient economic data.
Futures predict that the Federal Reserve will raise interest rates by 25 basis points and by 50 basis points at its meeting on March 22.
The February jobs report, which is scheduled for Friday, and Powell’s testimony to Congress on Tuesday and Wednesday will be highly anticipated.
Jane Foley, a currency strategist at Rabobank, stated, “Of all the events this week, payrolls will be the most important one.”
She asked, “Are we going to have a continuation of the higher February outlook for longer or are the markets going to return to January payrolls is going to be a bit of an outlier and maybe the economy is slowing?”
In addition to strong readings of consumer spending and business activity later in the month, the January monthly employment report’s blisteringly rapid job growth and sustained wage inflation were sufficient to convince investors that the U.S. central bank will not have any reason to cut rates this year.
Since then, the value of the dollar has increased by around 2%, primarily at the expense of the Japanese yen, which has lost over 5% of its value against the currency of the United States.
Since the beginning of February, the euro has lost about 3% against the dollar. At the end of the day, it was at $1.0635, and sterling was down 0.4 percent to $1.200.
Friday’s weekly futures data revealed that money managers have the largest bullish position toward the euro in more than two years. This led to the currency reaching nine-month highs in February. But right now, that makes it look like it could go down hard, especially if investors’ expectations for U.S. interest rates don’t change and economic data from the euro zone don’t show much improvement.
According to Rabobank’s Foley, “at this stage, people probably extended those positions assuming a recovery story. What they’re getting instead is a technical recession followed by some resilience, and that’s not good enough.”
In the meantime, Powell’s remarks will also be scrutinized.
According to Deutsche Bank (ETR:), “He may provide clues as to what employment and inflation numbers need to do to make the Fed act in a particular way, especially how it pertains to whether 50-bp hikes are back on the table.” Jim Reid, a strategist, stated.
Before the Bank of Japan Governor Haruhiko Kuroda’s final policy meeting on Friday, the yen was down 0.24 percent on the day at 136.15 per dollar.
Somewhere else, fell against the dollar, subsequent to Beijing set an unassuming objective for 2023 financial development of around 5%. The Australian dollar, which is frequently used as a liquid proxy for the yuan, fell 0.7% to $0.672, while the fell as much as 0.8 percent to 6.949 dollars per dollar.
