The dollar is rising at the beginning of the new year, but sentiment is weak

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By Dhara Ranasinghe

LONDON (Reuters) – The dollar rose further on Monday, temporarily falling from recent six-month lows against a basket of major currencies.

It recently weakened as markets announced that a US Federal Reserve tightening cycle is nearing its end and sentiment remained fragile.

And the first trading day of the year was subdued as many countries, including major trading centers such as the UK and Japan, were closed for public holidays.

The dollar index, which measures the greenback’s value against a basket of other major currencies, traded up about 0.16% to 103.65 – versus around a six-month low hit last week at around 103.38.

The euro fell about a third of a percent to $1.0680, but not far from its highest level since June.

Against the yen, the dollar was slightly weaker at 130.94 after hitting its lowest level since August last month.

“The dollar index is trying to rise today, but we are seeing it lose some of the strength it gained over the last year,” said Ulrich Leuchtmann, head of forex research at Commerzbank.

“After the last Fed meeting, the market was not convinced that the Fed will not cut rates later in 2023. It will be an interesting year.”

After raising rates by a total of 425 basis points since March to stem rising inflation, the Fed has begun to slow the pace of rate hikes.

This tightening by the Fed helped push the dollar index up 8% over the past year, marking its biggest annual jump since 2015.

Central banks and inflation remain a key focus for markets, as well as signs of how long and deep a recession could be.

The executive director of the International Monetary Fund Kristalina Georgieva said on Sunday that 2023 will be a tough year for the global economy.

Meanwhile, data from China showed factory activity fell for a third straight month and at the sharpest pace in nearly three years in December as COVID infections rolled off production lines after t -the government’s sudden lifting of measures against the virus.

S&P Global’s final purchasing managers’ index (PMI) for Germany’s manufacturing sector rose to 47.1 in December from 46.2 in November as the easing of supply chain problems -supply helped to ease the decline in the industry.

While the eurozone economy is also heading for recession, concerns over winter gas supplies have eased, meaning a downturn may not be as severe as feared a few months ago. only.

Eurozone wages are rising faster than previously thought and the European Central Bank (ECB) wants to prevent this from fueling already high inflation, ECB President Christine Lagarde said at the weekend.

“The euro’s recent strength is being driven by a combination of factors, including both hawkish ECB commentary and hopes of a US interest rate hike,” said Piet Haines Christiansen , chief analyst at Danske Bank.

“There is also hope that natural gas power supply is not as bad as feared.”

(Reporting by Dhara Ranasinghe Additional reporting by Nell Mackenzie; Editing by Mark Potter)

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