On Tuesday, the US dollar fell, losing some of the gains from the previous session. Despite that, the dollar held close to its one-month high reached yesterday. Investors are betting on how high the US Federal Reserve would have to raise rates in its quest to reduce inflation. As the minimum range increased, the demand for dollars decreased slightly. Some traders think the Fed may not be willing to continue offering higher rate hikes.
On Friday, a US jobs report showed nonfarm payrolls soared by 517,000 jobs last month. That indicated that the labor market remains resilient. This news boosted the US dollar as investors expected the Federal Reserve to consider offering more rate hikes. One concern has been that the agency’s aggressive policy could hurt the economy and trigger a recession. However, that does not appear to be the case so far.
How are they European the coins go?
The common currency rose 0.08% to $1.0735 on Tuesday. However, it fell to $1.0709 in the previous session, reaching its lowest level since January 9. Meanwhile, the British pound was up 0.2% today. It changed hands at $1.2046 at last. The British pound also plunged to a one-month low of $1.2006 on Monday. Additionally, the New Zealand dollar rose 0.29% to $0.6323. Despite the gains, the Kiwi traded near its one-month low of $0.6271 hit on Monday.
On Monday, the US dollar index soared to a nearly a month high of 103.76. However, it fell 0.13% to 103.47 today. Tina Teng, a market analyst at CMC Markets, said the stronger-than-analysts-expected US jobs report prompted traders to change expectations about the Fed’s monetary policy. Market participants now they think the Fed might have enough room to continue to hike. She added that while this job number is not crucial, it will have a major impact on the agency’s decision.
US Treasury yields have risen on that market sentiment. Two-year yields finally settled at 4.4267%, after reaching a one-month high of 4.4930% in the previous session. On the other hand, the benchmark 10-year yield stood at 3.6192% on Tuesday. The latter reached a four-week high of 3.6550% yesterday.
On Tuesday, the Japanese currency rose 0.3% to 132.26 per USD. However, it changed hands near its one-month low of 132.90 per USD reached on Monday.
Today, new data showed that the country’s real wages soared in December for the first time in nine months. Still, investors debated whether the Japanese government would change its ultra-easy monetary policy.
On Monday, a newspaper reported that Bank of Japan (BOJ) deputy governor Masayoshi Amamiya may take over as central bank governor, replacing Haruhiko Kuroda.
What about emerging market currencies?
The Philippine peso fell to a more than three-week low on Tuesday. Traders contemplated whether the country’s central bank would continue to raise rates. Shares in Kuala Lumpur fell 1%, while in Singapore, shares fell 0.3%. On the other hand, Seoul stocks were up 0.5% today. In Jakarta, shares added 0.9% during this session.
On Tuesday, the Thai baht rose 0.3%. At the same time, the Singapore dollar added 0.1%. The Indian rupee gained the same amount. However, some currencies suffered during this session. The ringgit fell 0.9%, reaching its lowest level since January 19. Overall, though, the currency has soared 2.4% so far in 2023. The Indonesian rupiah fell 0.6%, hitting a more than two-week low.
The Australian dollar soared on Tuesday after the Reserve Bank of Australia raised its interest rates. The Australian dollar jumped as high as $0.6952 during the session. However, it eventually traded at $0.6932.
The Reserve Bank of Australia announced a 25 basis point hike on Tuesday. He also confirmed that the rate increases would continue in the coming months. However, this news has not surprised investors as they expected the RBA to take a more aggressive tack.
Rob Carnell, ING’s regional director of research for Asia-Pacific, said the central bank is likely to expect inflation to stay high for some time. That is why it decided to continue with more aggressive rate hikes in the coming months. However, such a policy will boost longer-term bond yields. The Australian dollar will also benefit as an aggressive course by central banks tends to support their currencies.
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