2023-12-06 09:19:36
The dollar held near a two-week high on Wednesday, while the euro weakened overall as markets increasingly bet on a central bank interest rate cut European from March.
The euro was down 0.1% once morest the dollar at 1.0783, following hitting a three-week low at 1.0775, as markets adjust rate expectations lower following soft data and comments from the dovish Central Bank.
The single currency also reached its lowest level in three months once morest the pound, in five weeks once morest the yen and in six and a half weeks once morest the Swiss franc.
“The story in currency markets is mainly one of a weaker euro,” said Niels Christensen, chief analyst at Nordea.
“Yesterday’s comments from the ECB’s Schnabel supported market sentiment on anticipated rate cuts.
Influential policymaker Isabel Schnabel told Archyde.com on Tuesday that further interest rate hikes might be off the table given the “remarkable” fall in inflation.
Markets now estimate there is around an 85% chance that the ECB will cut interest rates at the March meeting, with cuts of almost 150 basis points by the end of the next year.
The ECB will set interest rates next Thursday and is almost certain to leave them at the current record low of 4%. The Federal Reserve and the Bank of England are also expected to keep their rates unchanged next Wednesday and Thursday, respectively.
Fed officials are now in a blackout ahead of the Dec. 12-13 meeting, where the focus will be on updating 2024 rate projections.
According to the CME’s FedWatch tool, traders gave a 60% chance that the central bank will cut rates in March. They also planned cuts of at least 125 basis points next year.
In recent days, investors have reassessed the extent of U.S. rate cuts next year, which has helped push the dollar higher.
“Markets have gone a bit too far in pricing in very aggressive rate cuts for next year,” said Aninda Mitra, head of macroeconomic and investment strategy for Asia at BNY Mellon Investment Management.
Mr. Mitra said there might be a rollback if the Fed sends the message more forcefully that it is not regarding to cut rates anytime soon.
“We think the Fed might wait until the second quarter and even then the cuts would be much smaller than the market would like,” Mr. Mitra said.
Widely expected Fed rate cuts will cause the dollar’s grip on other G10 currencies to loosen next year, dampening the note’s outlook, according to a Archyde.com poll of foreign exchange strategists. Green.
The dollar index, which measures the currency once morest six other major currencies, was little changed at 103.94.
In Asia, the spotlight was on China, as markets faced the rating agency Moody’s reduction of the Asian giant’s credit outlook.
China’s yuan rose 0.11 percent to $7.1661, a day following Moody’s cut China’s credit outlook to “negative.”
The yuan spot rate opened at 7.1570 per dollar and was last changed at 7.1577.
Major Chinese state banks stepped up their sales of U.S. dollars following Moody’s statement on Tuesday, and they continued to sell the greenback on Wednesday morning, Archyde.com reported.
Elsewhere in Asia, the Japanese yen remained stable at 147.14 per dollar. The Australian dollar rose 0.4% to $0.6581, while the New Zealand dollar rose 0.5% to $0.6157.
In cryptocurrencies, bitcoin fell 0.5% to $43,868 following surging above $44,000 earlier in the session.
The world’s largest cryptocurrency has gained 150% this year, fueled in part by optimism that a U.S. regulator will soon approve exchange-traded bitcoin spot funds (ETFs).
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