News Tech: The dollar headed for its biggest weekly decline in eight months on Friday as investors adjusted long positions on the assumption that several US rate hikes this year were fully priced in. US inflation Dollar selling forced the US dollar, especially through key support for the euro, in a week when data showed rates were at their highest level since the early 1980s. Traders seem content to reduce their bets until a clear trend emerges. The dollar index is down about 0.9% this week, its biggest weekly drop since May last year, and is expected to end about six months of gains.
“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 clients.
“What will this change? We need to see data on the economy that convinces the market to see stronger growth, which could push Terminal Fed Fund rates higher.
The index held its last at 94.849 in quiet Asian trading. The euro has risen more than 0.8% so far this week, breaking its range for the first time since late November. At $1.1457, it will not face a strong resistance on the chart until $1.1525. The yen is up 1% for the week, down to 115 from 114.13 last time. The move comes as US interest rate futures confirmed four rate hikes this year. However, his Fed officials’ hawkish comments about shrinking the Fed’s balance sheet have pushed long-term rates down slightly.
Currencies are also out of trading range, and traders will have to look closely at labor and inflation data from both countries this month for any indication of further changes in central bank rhetoric. The New Zealand dollar has gained 1.3% in the week so far, above the 50-day moving average of $0.6861. The Aussie briefly broke above the permanent resistance near $0.7276 this week before returning to that level on Friday. “Further evidence of strength in the job market raises hopes of a possible positive turn in RBA rhetoric underpinning the outlook for the Australian dollar,” said Jane Foley, currency strategist at Rabobank.