Dollar Slips on Bet Rates Have Peaked

Reuters | November 24, 2023

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By Saqib Iqbal Ahmed

NEW YORK (Reuters) -The dollar slipped against a basket of currencies on Friday on news of steady U.S. business activity in November, but private sector employment declined in line with expectations for a fourth-quarter economic slowdown.

Currencies traded in a relatively narrow range with U.S. markets closing early the day after the U.S. Thanksgiving holiday.

“It’s incredibly quiet, as you’d expect on the day after Thanksgiving, with liquidity still pretty thin, and volumes again on the light side,” said Michael Brown, market analyst at Trader X in London.

“I think what we’re seeing is a classic case of the market taking the ‘path of least resistance.'”

S&P Global said on Friday its flash U.S. Composite PMI Output Index was unchanged at 50.7 this month as a modest rise in services sector activity offset a contraction in manufacturing. A reading above 50 indicates expansion in the private sector.

The lack of strong order growth resulted in businesses shedding workers, with the survey’s employment index dropping to 49.7 in the first contraction since June 2020 from 51.3 in October.

An easing labor market will aid the Fed’s fight against inflation.

“Economic data have been producing a fair amount of evidence of a cyclical downturn in the US,” Jane Foley, senior FX strategist at Rabobank said in a note.

The dollar index, which measures the U.S. currency with six peers, eased 0.4% to 103.35, staying close to the 2-1/2 month low of 103.17 touched earlier this week. For the week, the index was down 0.5%, after slipping 1.9% last week.

The index is on course for its weakest monthly performance in a year on growing expectations the Federal Reserve is done with raising interest rates and could start cutting them next year.

Elsewhere, the Japanese yen was about flat against the dollar at 149.45, after strengthening on news that Japan’s core consumer price growth picked up slightly in October.

The data reinforced investors’ views that stubborn inflation may push the BOJ to roll back monetary stimulus before long.

ING economists said they expect the BOJ to move away from its super-accommodative stance next year.

“We believe that the BOJ may scrap the yield curve programme as early as the first quarter of next (year), as Japanese government bonds appear to have stabilised,” they said.

The bank will “then begin its first rate hike in Q2 2024 if wage growth continues to accelerate next year.”

The nationwide core consumer price index (CPI), which excludes volatile fresh food costs, rose 2.9% year on year in October, government data showed on Friday, against 3.0% expected by economists in a Reuters poll.

The euro was 0.39% higher at $1.0946 after data confirmed an initial estimate published in late October that showed Germany’s economy shrank slightly in the third quarter from the previous three months.

German business morale improved for a third straight month in November, data showed.

The single currency is pausing after gaining ground on Thursday on a series of preliminary surveys showing recession in Germany may be shallower than expected, which offset a downbeat reading on French business activity.

Sterling rose 0.57% to its highest since early September after data on Thursday showed British companies returned to growth in November, fuelling hopes Britain will avoid a recession.

In cryptocurrency markets, bitcoin rose 1.14% to $37,728, its highest since May 2022. A spate of filings for spot bitcoin and ether exchange-traded funds (ETFs), including from traditional finance heavyweights, has revived the crypto market which last year was crushed by a series of meltdowns.

(Reporting by Saqib Iqbal Ahmed; additional reporting by Ankur Banerjee in Singapore and Joice Alves in London; editing by David Evans, Jason Neely and Richard Chang)

 

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