Dollar Down, Set to Break Upward Trend as Risk Appetite Returns

The dollar was down on Friday morning in Asia, set for its first weekly decline since the start of September. It retreated from a one-year high as investors focus on when the U.S. Federal Reserve will start to hike interest rates.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.02% to 93.938 by 12:54 AM ET (4:54 AM GMT).

The USD/JPY pair was up 0.27% to 113.97.

The AUD/USD pair inched up 0.07% to 0.7420 and the NZD/USD pair was up 0.28% to 0.7055.

The USD/CNY pair inched down 0.04% to 6.4356 while the GBP/USD pair inched up 0.10% to 1.3687.

Improving risk sentiment, which boosted global stocks, commodity prices, and bond yields, also weighing on the safe-haven dollar. It only maintained the momentum of the past five weeks against the yen, its fellow safe haven.

“We end the week with risk flying. Equities are going up hard, and the yen has no place as a hedge,” because it would just drag on overall portfolio performance, Pepperstone head of research Chris Weston said in a note.

The U.S. currency had rallied since early September 2021 on expectations the Fed would begin asset tapering earlier than expected as the economic recovery from COVID-19 continues and energy prices continue to climb.

Minutes from the central bank’s latest meeting that took place on Wednesday said that that asset tapering is likely to begin in November 2021 but that officials remain sharply divided over inflation. Money markets are now pricing in about 50/50 odds of a 25-basis point rate hike by July 2022.

The dollar index is “looking a little shaky, but any slippage should prove modest” with Fed asset tapering now imminent, Westpac strategists said in a note. Any dips in the index should be limited to 93.70, the note added.

U.S. data, including retail sales as well as the University of Michigan consumer sentiment and Michigan consumer expectations indexes, will be released later in the day. This follows data released on Thursday that showed that the producer price index rose 0.5% month-on-month in September, and a lower-than-expected 293,000 initial jobless claims were filed throughout the week.

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