Dollar near eight-month low ahead of central bank meetings

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By Rae Wee

SINGAPORE (Reuters) – The dollar fell to near an eight-month low against its peers on Thursday, as a poor U.S. corporate earnings season fueled recession fears and traders remained cautious ahead of a series of central bank meetings next week.

The US Dollar Index, which measures the greenback against a basket of currencies, was last seen at 101.53, smoldering near last week’s eight-month low of 101.51.

Trading was thin on Thursday as Australia was on holiday and some parts of Asia were still closed for the Lunar New Year.

Low earnings and forecasts from US companies and big layoffs in the technology sector have raised fears of a slowdown in the US economy, prompting investors to lower expectations about how much the Federal Reserve will take to keep interest rates aggressive to raise.

“There are now signs that the US economy is slowing in more significant ways,” Wells Fargo economists said.

“With the Fed no longer leading the way on rate hikes and US economic trends likely to deteriorate, we now believe the US dollar has entered a period of cyclical depreciation against the most foreign currencies.”

The Fed’s policy-making committee will begin a two-day meeting next week and markets priced in a 25 basis point rate hike, a step down from increases of 50 basis points and 75 basis points of the central bank last year.

Markets are expecting policy makers from the Bank of England and the European Central Bank (ECB), also due to meet next week, to announce rate increases of 50 basis points. The ECB is expected to be most likely to remain hawkish.

Sterling was last up 0.12% at $1.2415, while the euro was up 0.05% at $1.0920 and flirting with a nine-month high of $1.0927 set on Monday.

“The euro is getting a lot of attention,” said Jarrod Kerr, Kiwibank’s chief economist. The eurozone “had a benign winter… The anticipated energy crisis has not yet fully materialized.”

Elsewhere, the Canadian dollar was last seen trading at 1.3393 per dollar after the Bank of Canada raised interest rates to 4.5% on Wednesday, but became the first major central bank to in the fight against global inflation he announced that he will probably keep more increases for the time being.

The Aussie rose 0.06% to $0.7107 after rising 0.8% on Wednesday after shock data showed Australian inflation rose to a 33-year high last quarter, boosting the -case for the Reserve Bank of Australia said it will raise interest rates again next month.

The kiwi settled at $0.6480 after falling 0.43% in the previous session after New Zealand’s fourth-quarter annual inflation came in below the central bank’s forecast.

In Asia, the Japanese yen rose 0.3% to 129.21 per dollar.

Bank of Japan (BOJ) policymakers discussed the inflation outlook at their January meeting and warned that it may take time for wages to rise sustainably, a summary of -opinions at their meeting on Thursday.

At that meeting, the BOJ left ultra-low interest rates unchanged, but strengthened monetary policy tools to prevent the 10-year bond yield from breaching the new threshold of ‘ 0.5%. His decision defied market expectations for further monetary policy adjustments.

(Reporting by Rae Wee; Editing by Bradley Perrett)


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