Dollar steady as traders weigh labour data; yuan eases

By Ankur Banerjee

SINGAPORE (Reuters) -The dollar was near a two-week high against a basket of currencies on Wednesday as investors assessed U.S. economic data that showed a cooling labour market, while wagering the Federal Reserve will cut rates next year.

The spotlight in Asia was on China, where the yuan extended losses as markets grappled with rating agency Moody’s (NYSE:) cut to the Asian giant’s credit outlook.

The , which measures the U.S. currency against six rivals, was 0.029% lower at 103.93, having climbed 0.3% overnight. The index is up 0.5% this month, after sliding 3% in November, its steepest monthly decline in a year.

Data on Tuesday showed U.S. job openings fell to more than a 2-1/2-year low in October, the strongest sign yet that higher interest rates were dampening demand for workers. Data also showed there were 1.34 vacancies for every unemployed person in October, the lowest since August 2021.

Moh Siong Sim, currency strategist at Bank of Singapore, said the data indicated that the cooling of the labour market is on track. “It puts a lot of focus now on the non farm payrolls this Friday.”

The November jobs data will provide further clues on the labour market ahead of the Fed’s policy meeting next week

Fed officials are now in a blackout period ahead of the U.S. central bank’s Dec. 12-13 meeting, where a key focus will be the updated projections of where they see rates at in 2024.

Traders have priced in 99.7% chance of the Fed standing pat next week but a 56% chance of the central bank cutting rates in March, according to CME’s FedWatch tool. They have also priced in at least 125 basis points worth of cuts next year.

Investors have been reassessing the extent of rate cuts next year in the past few days, helping lift the dollar.

“Markets have gone a bit overboard with pricing in very aggressive path of rate cuts through next year,” said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon (NYSE:) Investment Management.

Mitra said there could be a snapback should the Fed drive home the message more forcefully that it is not about to cut rates anytime soon.

“It ultimately it boils down to an argument about when the cuts really begin … the first quarter or sometimes in the second quarter.”

“Our view is that Fed might hold off till the second quarter and even then the cuts would be a lot more shallower than what the market would like,” Mitra said.

The widely expected rate cuts from the Fed will result in the dollar loosening its grip on other G10 currencies next year, dimming the outlook for the greenback, according to Reuters poll of foreign exchange strategists.

Meanwhile, the offshore eased 0.11% to $7.1647 per dollar, a day after Moody’s cut China’s credit outlook to “negative”.

The spot yuan rate opened at 7.1570 per dollar and was changing hands at 7.1578 at midday, 98 pips weaker than the previous late session close.

China’s major state-owned banks stepped up U.S. dollar selling forcefully after the Moody’s statement on Tuesday, and they continued to sell the greenback on Wednesday morning, Reuters reported.

The euro was up 0.02% at $1.0797, having dropped to three-week low of $1.07785 on Tuesday.

Investors believe the European Central Bank could deliver its first rate cut by March. Inflation across the euro zone has fallen more quickly than most anticipated.

Sterling was last at $1.261, up 0.13% on the day. The Japanese yen was flat at 147.14 per dollar.

The Australian dollar rose 0.53% to $0.659, while the New Zealand dollar rose 0.62% to $0.617.

In cryptocurrencies, bitcoin eased 0.69% to $43,591.23, having surged above $44,000 earlier in the session.

The world’s largest cryptocurrency has gained 150% this year, fuelled in part by optimism that a U.S. regulator will soon approve exchange-traded spot bitcoin funds (ETFs).

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