Written by Uncle Banerjee
SINGAPORE, Nov 3 (Reuters) – The dollar remained underdogs on Friday as risk sentiment rose as traders said the U.S. Federal Reserve’s interest rate hike was likely to be completed. The currency was on track for a weekly decline against a basket of currencies.
The dollar index, which measures the value of the U.S. currency against six rival currencies, was at 106.22, not far from Thursday’s one-week low of 105.80. The index is expected to fall 0.3% for the week, the third week of decline since July.
After the U.S. central bank held interest rates on hold on Wednesday, markets are pricing in less than a 20% chance of a rate hike in December, compared with 39% last month, the CME FedWatch tool showed. But the Fed, in deference to the economy’s resilience, left the door open to further increases in borrowing costs.
Data on Thursday showed the number of Americans filing for new jobless benefits rose modestly last week as the labor market continues to show little sign of a significant slowdown.
“The data flows supported the idea that we are nearing a soft landing and the end of the US rate hike cycle,” said Tapas Strickland, head of market economics at NAB.
Investors’ focus will be on October non-farm payrolls to be released later in the day, with consensus at 180,000 jobs, with a weaker result putting further pressure on the dollar. There is a high possibility that this will occur.
Analysts say the dollar’s pullback is likely only temporary, pointing to the strength of the U.S. economy relative to the rest of the world.
“While the global economy is slowing, the U.S. economy appears to be more resilient, meaning the Fed and ECB will see a wider divergence, followed by a wider real interest rate differential,” said Flavio Carpenzano, investment director for fixed income at Capital. There is a possibility that it will.” group. “This is why it’s hard to see this being a big trigger for dollar weakness in the coming months.”
The European Central Bank ended its 10th consecutive interest rate hike last week, and the debate has turned to how long interest rates will remain high.
ECB board member Isabel Schnabel said on Thursday that the central bank is on track to bring inflation down to 2% by 2025, but the central bank is still on track to bring down inflation to 2%, as the “last mile” of eliminating inflation could be the toughest. He said he could not close the door on rate hikes.
The euro rose 0.49% on Thursday, but fell 0.03% to $1.0617. This single currency is expected to record an increase of 0.5% in the week.
The Japanese yen was trading at 150.41 yen to the dollar, keeping traders nervous as they watched for signs of intervention by Japanese authorities.
The yen has had a hectic week, hitting a one-year low against the dollar and a 15-year low against the euro on Tuesday as the Bank of Japan adjusted its yield curve control policy.
Reuters reported on Thursday that central bank Governor Kazuo Ueda will continue dismantling ultra-easy monetary policy, aiming to end a decade of easy monetary policy next year.
Mr. Ueda’s intentions are based on interviews with six people familiar with the Bank of Japan’s thinking, including government officials who have direct contact with the Bank.
Sterling was trading 0.10% lower on the day at $1.2189, up 0.4% and on track to rise 0.5% for the week. The Bank of England joined other major central banks in keeping interest rates on hold, but stressed it had no plans to cut rates anytime soon.
The Australian dollar fell 0.19% to $0.642, and the New Zealand dollar fell 0.24% to $0.588.
(Reporting by Ankur Banerjee and Rae Wee in Singapore; Editing by Gerry Doyle)
