Dollar Licks Wounds As Policy Peak Looms
A bruised dollar took an interval on Monday after it suffered the worst weekly drop of the year, and traders waited for economic data and policy decisions before they could sell it down even further.
The Euro, which took a leap to 2.4% in the previous week to a 16-month high, stood just below the peak at $1.1223. The Yen, which also upped 2.4% the previous week, stood at 138.56 per dollar.
However, the Chinese growth data stood a little above the low expectations on Monday but did not spark much of a currency market response as traders already had priced an inactive quarter and are now waiting for the government’s action to step up in stimulating the promotion of spending.
The Australian and the New Zealand dollar, however, rose slightly, with the Aussie standing at $0.6821 after last week’s peak of $0.6895, while the kiwi was down by 0.2% at $0.6355 after striking a five-month high of $0.6412.
“The data suggests that China’s post-COVID boom is clearly over,” Carol Kong, a strategist at the Commonwealth Bank of Australia, suggested. “But markets already had low expectations, and reaction from here is fairly limited.”
The dollar slide last week started with Yen purchases, as investors saved yen-funded positions in the emerging markets, but that kept extending sharply after an unexpectedly softer U.S inflation data inclined support to wagers expecting the U.S interest rates will peak soon.
Hikes are to be expected from the Federal Reserve and the European Central Bank within the next week, but past that, the market pricing indicates the Fed will probably stop, before cuts next year, while another hike beckons in Europe.
“The FX market is front running possible normalization of Fed policy in 2024,” the research head at brokerage Pepperstone, Melbourne, Chris Weston, added.
“The question then is whether the dollar sell off has gone too far and we are at risk of mean reversion early this week.”
The U.S. dollar index dropped by 2.2% the previous week, its most piercing one-week fall after November; however, it was steady at 99.936 in its Asia session.
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