Monday, January 24, 2022

Dollar loses long-term confidence as major weekly losses

Various currencies and figures

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The dollar headed for its biggest weekly decline in eight months on Friday as investors cut long positions and believed several US rate hikes this year were fully priced in.

In a week where data showed US inflation at its hottest level since the early 1980s, selling forced the greenback through key support, especially against the euro, and kept traders safe until a clear trend emerged. Feels satisfied to lighten your bets.

The dollar index is down about 0.9% for the week, on what is certainly its biggest weekly percentage drop since last May and looks set to halt a nearly six-month rally. The index was last at 94.849 in calm Asia trading.

The euro is up more than 0.8% for the week so far, and has broken out of a range it has held since late November. At $1.1457 it did not face strong chart resistance until $1.1525.

The yen is up 1% over the week, and has pushed back through $115, with the last holding at 114.13.

The move comes as US interest rate futures are locked in four hikes this year. But long-term yields have fallen slightly due to sharp comments from Federal Reserve officials about shrinking the bank’s balance sheet.

Derek Halpenny, head of global market research, said: “Investors are indicating that ending quantitative easing, increasing rates four-fold and introducing quantitative tightening in the span of nine months is so aggressive that it limits further growth.” will do it.” in MUFG.

“This has really reinforced the belief that peak fed funds will be below 2%,” Halpiny said in a note to clients.

“What could change that? We’ll need to see data on the economy that assures the market of strong growth. This could lead to consideration of a change in the terminal fed funds rate. This would be a catalyst for renewed dollar strength.”

Antipodean currencies have also been woken from their range and traders will have to watch labor and inflation data in both countries closely this month, which could indicate further changes in central bank rhetoric.

The New Zealand dollar is up 1.3% for the week so far and is above its 50-day moving average of $0.6861. The Aussie broke this week’s stubborn resistance around $0.7276, but bounced back to that level on Friday.

“Further evidence of consolidation in the labor market will trigger expectations … for a potentially positive change in the Reserve Bank of Australia’s rhetoric that will lower the outlook for the AUD,” said Rabobank FX strategist Jane Foley.

“We expect AUD/USD to increase to $0.74 in the second half of 2022.”

Sterling is proceeding, defying a political crisis, to position Prime Minister Boris Johnson on the belief that the UK economy could withstand a wave of Covid-19 infections and start raising rates from next month. Is.

The pound traded above its 200-day moving average on Thursday and is heading for a fourth consecutive weekly gain of over 0.5%. It last bought $1.3707.

In Asia, the Bank of Korea raised its benchmark interest rate by 25 basis points to 1.25% on Friday, as expected, and the South Korean won looked to hang on to a weekly rise of around 0.8%.

China’s yuan, on the other hand, has narrowed its gains on the dollar on rising expectations of a policy easing to soften the landing of a slowing economy. Trade data is due around 0200 GMT.

Other notable moves in overnight trade included a retreat of the Canadian dollar from a two-month high as oil prices eased and the safe-haven Swiss franc rose to a ten-week high of 0.9093 per dollar. .


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