The US dollar rallied on Friday, gaining slightly after the previous session’s rally. However, currency markets were muted as investors awaited new US jobs data. The report is due out later today and could influence the Federal Reserve’s plans for future interest rate hikes.
The Fed raised rates by 25 basis points at its meeting on Wednesday. That’s lower than previous increases of 50 bp. The agency is trying to moderate its aggressive policy as inflation weakens and the country’s economy heads toward recession. However, this news pushed the dollar into the red. The currency had suffered substantial losses until it suddenly rallied on Thursday.
The dollar jumped against the euro after the policy decision of the European Central Bank. The ECB raised rates 50bp on Thursday to 2.5%. Consequently, the common currency declined. It changed hands lower by 0.1% to $1.09 today. Despite that, the euro is well above its 20-year low of $0.953 reached in September. Some analysts believe the ECB may have ended rate hikes after one more hike in March.
Alvin Tan, head of Asia currency strategy at RBC Capital Markets, said the dollar’s strength could come from another source. Tier 1 tech companies such as Apple (AAPL.O), Alphabet (GOOGL.O) and Amazon (AMZN.O) reported lower earnings recently. Investors preferred to avoid riskier currencies after this news. But the dollar soared thanks to its safe haven status.
How is the dollar priced now?
The dollar index rose 0.1% to 101.89 against the basket of six major currencies on Friday. Another safe-haven currency, the Japanese yen, also advanced. It also gained against the dollar, trading hands at 128.66 per USD.
In Europe, the pound sterling plunged 0.18% today. It traded at $1.22 at last. The pound was also down 1.2% in the previous session. The Bank of England raised interest rates at its meeting yesterday. The bank also claimed that inflation was declining in the country at last.
Meanwhile, the Australian dollar fell 0.35% to $0.705 on Friday. The Canadian dollar also declined. The dollar soared 0.35% against the latter at Cdn$1,336.
The main focus of market participants continues to be on the US nonfarm payroll data. According to surveys, economists expect the report to show an additional 185,000 jobs in January. While that’s not a bad result, this number is lower compared to the 223,000 new jobs added in December.
Analysts believe that the US dollar is likely to continue trading under pressure in the near term. If the Fed decides to pause its tightening policy, that will also weigh heavily on the dollar. The general consensus in the market is that the dollar remains low unless the markets switch to a risk-off mood.
What about emerging market currencies?
Most of the emerging Asian currencies fell against the stronger dollar on Friday. On the other hand, Asian stock markets traded in the green. In Jakarta, shares rose 0.7%, breaking their one-month high. Furthermore, they remained on track for a weekly gain of 0.6%.
At the same time, shares in Bangkok, Seoul and Singapore rallied, gaining between 0.2% and 0.4%. However, some stocks suffered losses. Malaysian shares fell 0.1%, while Philippine shares were down 1%.
MUFG Bank analysts noted that if the US jobs data turns out to be strong, that could boost the US dollar and send emerging market currencies lower. Poon Panichpibool, the market strategist at Krung Thai Bank, also said investors took the recent policy decisions by major central banks as a sign that they are turning dovish. However, the rally in the dollar, triggered by risk aversion, weighed on emerging market currencies.
On Friday, the South Korean won plunged 0.7%. The Indonesian rupiah also fell 0.1%, along with the Indian rupiah. The rupee remained on track for a fourth consecutive weekly gain. However, the rupee seemed poised for a 0.9% drop this week.
Traders are focusing on fourth quarter gross domestic product data in Indonesia. Expires February 6. According to forecasts, economic growth is likely to show a decline in the last quarter. Commodity and energy prices plummeted, weighing on exports.
Investors fear that the global economic downturn will cause a lot of inconvenience. Adani group shares slumped in India, losing $115 billion in market value this week.
Meanwhile, the Malaysian ringgit fell 0.6%. Prior to today’s session, the coin enjoyed three consecutive weeks of gains.
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