The US dollar fell against the euro on Wednesday. Traders focused on the Federal Reserve’s decision on interest rate policy. The agency meeting is today. Some market participants expect the Fed to announce the end of its tightening cycle.
The dollar index plunged 0.2% to 101.91 on Wednesday. It also traded in the red in the previous session. A new report showed that US labor costs rose in the fourth quarter at their slowest pace in a year. Following that news, the dollar struggled to hold on to its gains. The index fell sharply after hitting a 20-year high of 114.78 on September 28. It has decreased for four consecutive months.
The Federal Reserve raised interest rates multiple times in 2022 to curb runaway inflation. Now traders expect the agency to deliver the smallest increase in ten months. However, market participants are arguing over which direction the Fed will take in the coming months. Both the US economy and inflation are currently losing momentum. Therefore, the Fed may have stopped raising rates to give the economy a chance to recover.
According to Michael Hewson, chief market analyst at CMC Markets UK, several Fed officials have stated that interest rates will remain high for months to come. However, the markets do not believe that. Several key inflation indicators showed that prices are falling, maintaining a stable trajectory.
How is the euro trade?
The common currency stayed pretty much the same today. The new data showed that inflation in the eurozone had fallen for the third consecutive month in January. However, this news has almost no influence on the movements of the currency. The euro rose 0.3% to $1.0893 on Wednesday.
ECB and Bank of England meetings are scheduled for Thursday. Investors expect central banks to raise interest rates by 50 basis points tomorrow. However, the inflation data is not likely to affect the ECB’s decision.
Simon Harvey, head of currency research at Monex Europe, noted that although inflation data is already available, the European central bank is unlikely to change course as quickly. Therefore, the hopes of traders are unrealistic in this regard.
The British pound was flat at $1.2320 today. The European Union and the United Kingdom have reportedly reached a post-Brexit customs agreement with Northern Ireland. But this news did not help the British pound much.
Economists are awaiting ISM manufacturing and job openings data. It is for today. These data could offer clues about the state of the US job market and economy.
How are emerging market currencies doing?
Most emerging market currencies moved in tight ranges on Wednesday. However, stocks rose across Asia. The Philippine peso jumped 0.3% today. Earned more among regional currencies. On the other hand, the Indonesian rupiah and the South Korean won were flat. The Singapore dollar also traded in the same range.
Tina Teng, a market analyst at CMC Markets, said investors want to know when the Federal Reserve will start the rate-cutting cycle. They also hope to determine if the central bank will change its current policy stance. She also added that the agency probably wouldn’t change course any time soon. However, it could become less aggressive if inflation continues to decline. There is also a shrinking economy to consider.
On Wednesday, the Indian rupee rose 0.1%. At the same time, shares soared 0.6%. The government of the country published the budget of the Union for the fiscal year 2023/24. The authorities want to increase capital expenditures. He will try to create more jobs before the general elections.
New reports showed that Indonesia’s January inflation eased but remains higher than the central bank’s target. The country’s central bank hinted that it might end its tightening cycle early last month. The bank expects to bring headline inflation within its target range in 2023.
Brian Tan, senior regional economist at Barclays, said the CPI inflation data surprised markets. The bank is not likely to raise rates aggressively in the coming months.
The tourism sector also flourished, while domestic consumption increased. That could support Thailand’s economy. Analysts anticipate growth of 4% this year.
The baht decreased 0.3% today. However, Thai stocks were up 0.6%. Seoul shares rose 0.8%. In addition, the benchmark Indonesian index rose 0.5%.
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