Dollar stays near three-month low, focus on inflation data

By Ankur Banerjee

SINGAPORE (Reuters) -The dollar was rooted near a three-month low on Thursday and was set to post its steepest monthly decline in a year as investors ramped up bets that the Federal Reserve is done with rate hikes ahead of a crucial inflation report later in the day.

The , which measures U.S. currency against six rivals, eased 0.058% to 102.74, not far from 102.46 – its lowest since Aug. 10 it touched on Wednesday.

The index is down 3.7% in November on growing expectations the Fed will cut interest rates in the first half of 2024.

The dollar clawed back some of its losses on Wednesday after data showed the U.S. economy grew faster in the third quarter than initially reported.

“I think it’s still pretty much all about U.S. yields. And by extension FOMC policy,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC:).

“Markets will continue to focus on what FOMC officials say about the prospect of the upcoming rate-hike cycle.”

Investors will be all ears on Friday when Fed Chair Jerome Powell takes the centre stage in the wake of Fed Governor Christopher Waller on Tuesday flagging a possible rate cut in the months ahead.

But before that, the spotlight will firmly be on Thursday’s crucial personal consumption expenditure (PCE) price index – the Fed’s preferred measure of inflation.

Christopher Wong, currency strategist at OCBC, said the data will offer a glimpse into whether the disinflation trend seen so far remains intact.

“If core PCE undershoots expectations to the downside, then USD may extend the move lower again.”

U.S. financial conditions are the loosest since early September and have eased 100 basis points (bps) in a month, according to Goldman Sachs. The bank’s global and emerging market indexes ticked up a bit last week, but financial conditions are also looser by around 100 bps from a month ago.

U.S. rates futures markets are now pricing in more than 100 bps of rate cuts next year starting in May, and the two-year Treasury yield is its lowest since July – it has slumped nearly 40 bps this week alone. [US/]

Meanwhile, 10-year notes are set for their strongest month since the 2008 global crash, with yields down 59 bps for November so far. In Asian hours, the yield on 10-year notes were last at 4.288%.

The weakness in the dollar has buoyed most Asian and regional currencies. Two of the best-performers are at the polar opposite ends of the ‘carry’ spectrum – the New Zealand dollar and Japanese yen.

The got an extra boost on Wednesday following the central bank’s ‘hawkish hold’ – policymakers kept the key cash rate at a relatively high 5.50%, but unexpectedly signalled that it could be raised again if inflation doesn’t moderate.

The currency was 0.26% higher at $0.6172, staying close to the four month peak of $0.6207 it touched on Wednesday.

Meanwhile, expectations that the Bank of Japan will soon end its negative rate policy have pulled the yen up from the depths, and in the process, eased pressure on the central bank to support the currency via direct FX market intervention.

On Thursday, yen strengthened 0.12% to 147.06 per dollar, remaining close to the two-and-a-half month high of 146.675 per dollar it touched on Wednesday. The Asian currency has firmed 3% against the dollar in November and is on course for its strongest month this year.

Bank of Japan board member Toyoaki Nakamura said on Thursday the central bank will likely need some more time before phasing out its massive stimulus.

Sterling was last at $1.2696, up 0.02% on the day, while the euro was down 0.01% at $1.0967 ahead of inflation data from euro zone.

The Australian dollar rose 0.31% to $0.6637 and is up 4.7% in November – its steepest one-month gain in a year.

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Currency bid prices at 0545 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0965 $1.0969 -0.03% +2.34% +1.0984 +1.0966

Dollar/Yen 147.0950 147.3050 -0.14% +12.09% +147.1800 +146.8700

Euro/Yen 161.31 161.51 -0.12% +14.98% +161.5300 +161.1400

Dollar/Swiss 0.8734 0.8737 -0.02% -5.54% +0.8739 +0.8718

Sterling/Dollar 1.2693 1.2695 +0.02% +4.99% +1.2705 +1.2692

Dollar/Canadian 1.3582 1.3589 -0.07% +0.22% +1.3594 +1.3576

Aussie/Dollar 0.6637 0.6617 +0.32% -2.63% +0.6648 +0.6617

NZ 0.6166 0.6156 +0.17% -2.88% +0.6182 +0.6154

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

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