News Tech: The dollar headed its biggest weekly drop in more than a year on Friday as investors adjusted long positions on the assumption that several US rate hikes this year are fully priced in. In a week when data showed U.S. inflation to be at its highest level since the early 1980s, U.S. dollar selling strengthened, particularly through key support for the euro and yen, prompting traders to wait until a clear trend emerges. They seem happy to see the reduced bets. The dollar index is down about 1.14% for the week, the biggest weekly percentage drop since December 2020, and is expected to end about six months of gains.
The dollar’s weakness came as US interest rate futures were priced to match four rate hikes this year. However, the Federal Reserve’s hawkish comments about shrinking central bank balance sheets pushed long-term rates down slightly. “Investors are very positive about the end of QE, four rate hikes, and starting QE tightening in nine months, and we expect more to come,” said Derek Halpenny, head of global market research at MUFG. “It seems to be signaling that they will limit the range of rate hikes”. “There is growing speculation that the Fed’s top dollar will fall below 2%,” Halpenny said in a note to his clients.
The index finally dropped about 0.20% to 94.654. The euro has risen more than 1% so far this week, above its range since late November and to its highest level since November 11. 11 for $1.1483. It does not face strong chart resistance until $1.1525. The dollar fell 1.53% against the yen, its worst since June 2020, and fell to 113.64 for the first time since December 21. The safe-haven yen has benefited from a fall in global stock markets, and Reuters also reported exclusively that the Bank of Japan is weighing how to launch a telegram for an eventual rate hike.
“What can it change? We need to see data on the economy that convince the market to grow stronger. This could lead to speculation that the Federal Funds (FF) rate will rise. Antipode currencies are also out of trading range, prompting traders to monitor labor and inflation data in both countries closely this month for anything that suggests further changes in central bank rhetoric. The New Zealand dollar has risen 1.46% in the week so far, above her 50-day moving average of $0.6861.