Dollar holds on to gains after rallying on rate hikes


Article content

LONDON/TOKYO — The dollar was little changed on Friday after rising in the previous session, as traders analyzed a raft of central bank rate hikes and grappled with the prospect that borrowing costs still have a way to climb.

The euro was flat against the dollar at $1.063. That followed a 0.5% fall on Thursday after the European Central Bank (ECB) raised interest rates and signaled it was far from finished, raising fears about the potential damage to the global economy and sending investors towards the safe-haven greenback.

Advertisement 2

Article content

Article content

A day earlier, Federal Reserve Chair Jerome Powell said policymakers expected U.S. rates to rise further and stay elevated for longer.

The “hawkish” rhetoric of central banks has caused traders to reconsider their bets that the pain due to rising interest rates might soon be over. That has triggered a sell-off in global stocks and European bonds on Thursday and Friday, supporting the dollar and weighing on currencies considered more risky.

“Yesterday was a big ‘risk-off’, so typically the dollar stands to benefit as a safe-haven asset,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

“In the short term we have a situation in which the market wants to sell dollars, not withstanding yesterday’s price action, but as we get into the new year we think that could reverse on account of the global growth slowdown.”

Advertisement 3

Article content

Against Japan’s yen, the greenback was down 0.49% on Friday to 137.08. It was 0.07% lower against sterling , with pounds changing hands at $1.219.

The dollar index, which gauges the currency against six major peers, was roughly flat at 104.48, after rallying more than 0.9% on Thursday.

The index has surged around 9% this year as the Fed has hiked interest rates hard, sucking money back towards dollar-denominated bonds. Yet it has dropped roughly 8% since hitting a 20-year high in September, as a slowdown in U.S. inflation has raised hopes the Fed’s rate-hiking cycle might soon end, and better than expected economic data from Europe has boosted the euro.

“The dollar should weaken significantly in the next 6 to 12 months… but it’s probably not going to be a one-way street,” said Dominic Bunning, head of European FX research at HSBC.

Advertisement 4

Article content

“I think there is still room for this choppiness because it’s an uneasy bullishness around risk appetite, it’s an uneasy bullishness on risk currencies.”

The Bank of Japan (BOJ) decides policy on Tuesday, and while no change is expected at that meeting, some market participants have begun betting on some tweaks to stimulus as Governor Haruhiko Kuroda prepares to depart in April.

“I am with the market consensus and don’t expect any policy change at the BOJ’s December meeting, but I want to carefully watch for any comments from Governor Kuroda about the next leadership,” said Takahiro Sekido, chief Japan strategist at MUFG.

The risk-sensitive Australian dollar was 0.07% lower at $0.67. It slid 2.38% in the previous session – its biggest drop since March 2020.

The New Zealand dollar rose 0.38% to $0.637.

(Reporting by Harry Robertson and Kevin Buckland; Editing by Sam Holmes, Mark Potter and Louise Heavens)



Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.


Source link

Comments are closed.