Dollar Wavers: The dollar opened the week on a shaky note as investors digested cautious comments from Federal Reserve Chair Jerome Powell. Bitcoin took center stage, surging to $40,000 in the Asian morning, a level not seen in over a year.
Powell’s remarks on Friday acknowledged the anticipated impact of U.S. monetary policy, indicating the benchmark interest rate is “well into restrictive territory.” While he maintained the Fed’s readiness to tighten policy further if necessary, traders seemed convinced that the rate-hike cycle had concluded. Market sentiment shifted, with a 60% chance of a rate cut by March, up from 21% a week ago, according to CME’s FedWatch tool. The U.S. dollar index, tracking the currency against major counterparts, hovered around Friday’s close at 103.28.
The upcoming November jobs report, set for release on Friday, is deemed the “most important risk event” of the week, influencing G10 currencies. Kyle Rodda, senior financial market analyst at Capital.com, noted a shift in the pricing of U.S. economic exceptionalism, accompanied by an unwinding of stretched long positions in the dollar.
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Against the yen, the dollar retreated to $146.58, hitting its lowest since September 11. The Australian dollar reached a four-month high of $0.669, while the kiwi touched $0.6222, its strongest level since late July. Sterling, trading around $1.2682, eased from its three-month high against the dollar. Currency markets may also be influenced by speeches from European Central Bank officials, with Eurozone economic data, including revised Q3 GDP, adding to the mix. Euro zone inflation falling to 2.4% in November fueled expectations of quicker interest rate cuts by the ECB.
The euro remained mostly flat at $1.0874, with President Christine Lagarde set to deliver a speech later on Monday. Despite positive Eurozone CPI data, Carol Kong, a currency strategist at Commonwealth Bank of Australia, doubted the immediate consideration of ECB rate cuts, citing the still-tight labor market.
In the cryptocurrency realm, Bitcoin reached $40,000 on expectations of U.S. regulatory approval for bitcoin exchange-traded funds. The evolving dynamics in currencies and cryptocurrencies highlight the intricate dance between central bank policies, economic data, and market sentiment.
Our Reader’s Queries
What is the projection for the dollar?
Based on Trading Economics’ global macro models and analysts’ expectations, the United States Dollar is projected to reach 103.16 by the end of this quarter. Looking ahead, it is estimated to trade at 106.38 in 12 months’ time.
What is the US dollar currency basket?
The U.S. Dollar Index gauges the dollar’s worth against six foreign currencies, namely the Euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona. It’s a useful tool to assess the dollar’s strength in the global market.