By Karen Brettell
NEW YORK (Reuters) – The dollar rallied on Friday after Federal Reserve Bank of New York President John Williams resisted the market’s interest rate cut expectations, although the greenback remained on track for its worst weekly performance in a month.
The dollar largely tumbled after updated interest rate projections from Fed officials released Wednesday showed an expectation of a 75 basis point rate cut in 2024.
Fed Chairman Jerome Powell was also interpreted as taking a more forgiving tone at the end of the US central bank’s two-day meeting, when he said the monetary policy tightening is likely over and a discussion on spending cuts is “in sight” .
But Williams said Friday that “we’re not really talking about rate cuts right now” at the Fed and that it’s “premature” to speculate on that.
“It’s a similar tone to what we heard from Powell earlier this week, but it somewhat reinforces the fact that the Fed is still a data-dependent bank and not really endorsing what the market is pricing in to some extent,” Bipan said. Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.
Rai also noted that much of the dollar’s move this week has been due to rebalancing of positions heavily skewed toward the dollar and focused on specific currency pairs, such as against the Japanese yen.
“This is a story about the excessive amount of debt and skewed positioning in the market, which needed more rebalancing than any dovish interpretation of what Powell said earlier this week,” he said.
Traders are pricing in aggressive expectations for rate cuts, with the first cut likely in March and 141 basis points in December.
Atlanta Fed President Raphael Bostic said Friday that the U.S. central bank could start cutting rates “sometime in the third quarter” of 2024 if inflation falls as expected.
Chicago Fed President Austan Goolsbee also said the Fed may soon have to shift its focus to preventing rising unemployment to combat inflation.
Data on Friday showed output at U.S. factories rose in November, boosted by a recovery in auto production after the end of strikes, but activity elsewhere was weaker as manufacturing struggles with higher borrowing and weakening demand for goods.
The dollar index last traded 0.56% higher that day at 102.52. On Thursday the index fell to 101.76, the lowest since August 10. The index is on track for a weekly loss of 1.39%, its worst weekly performance since November 19.
The euro fell 0.83% to $1.0899. The price reached $1.1009 on Thursday, the highest level since November 29. The pound fell 0.60% to $1.2690 after reaching $1.2793 on Thursday, its highest level since August 22.
The euro and sterling were supported on Thursday by the European Central Bank (ECB) and the Bank of England who opposed interest rate cuts.
Nevertheless, investors are still betting heavily on interest rate cuts from both central banks next year.
According to Pepperstone strategist Chris Weston, the ECB has more room than most to ease given low growth in the eurozone and a rapid decline in inflation.
“However, the backlash from (ECB President) Lagarde and co raises suspicions about the timing of the initial easing – perhaps this is a function where it is desirable to keep the currency strong to limit imported inflation.”
The euro was also hit on Friday by surveys showing that the downturn in euro zone business activity surprisingly worsened in December.
The Bank of Japan is the last of the major central banks to meet this month and the question among traders and investors is whether or not it will signal its intention to abandon its policy of keeping interest rates at record lows next week sail.
The dollar last rose 0.24% to 142.18 yen, after falling to 140.95 on Thursday, its lowest level since July 31. The dollar is on track to post its worst week against the Japanese currency since July 14, down 1.94%.
fell 2.1% to $42,130.
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Bid prices in currency at 3:00 PM (2000 GMT)
Description RIC Last US Close Pct Change YTD Pct High bid Low bid
Previous change
Session
Dollar index 102.5200 101.9700 +0.56% -0.937% +102.6400 +101.8300
Euro/Dollar $1.0899 $1.0992 -0.83% +1.73% +$1.1004 +$1.0885
Dollar/Yen 142.1750 141.8450 +0.24% +8.44% +142.4600 +141.4500
Euro/yen 154.97 155.98 -0.65% +10.46% +156.4900 +154.4200
Dollar/Swiss 0.8700 0.8677 +0.28% -5.90% +0.8707 +0.8654
Sterling/Dollar $1.2690 $1.2767 -0.60% +4.93% +$1.2790 +$1.2669
Dollar/Canadian 1.3371 1.3407 -0.27% -1.32% +1.3415 +1.3350
Aussie/Dollar $0.6706 $0.6698 +0.12% -1.62% +$0.6728 +$0.6664
Euro/Swiss 0.9481 0.9535 -0.57% -4.18% +0.9541 +0.9456
Euro/British Pound 0.8587 0.8610 -0.27% -2.91% +0.8617 +0.8572
NZ $0.6209 $0.6207 +0.03% -2.21% +$0.6229 +$0.6180
Dollar/dollar
Dollar/Norway 10.4570 10.5020 -0.31% +6.67% +10.5610 +10.4340
Euro/Norway 11.4013 11.5451 -1.25% +8.65% +11.5634 +11.3840
Dollar/Sweden 10.2654 10.2330 -0.56% -1.37% +10.3235 +10.2057
Euro/Sweden 11.1897 11.2527 -0.56% +0.36% +11.2789 +11.1810
