Dollar Index Falls For First Time This Year, Yen Continues To Struggle

(CTN News) – Following almost two months of anticipation that the Federal Reserve Dollar would begin reducing rates later than expected, investors took a break from buying the US dollar index on Friday.

US Federal Reserve cut its benchmark rate in May, but investors have dramatically reduced their expectations in recent months. According to officials, markets priced in seven 25 basis point cuts this year.

According to Bannockburn Global Forex’s chief market strategist Marc Chandler, the dollar’s rally has been attributed to the Fed’s return.

Traders may also be pricing in the possibility of slowdowns in economic data.

Chandler believes US economic data will weaken starting with the February jobs report, due March 8.

There may also be clues for Fed policy in the Personal Consumption Expenditures (PCE) report due next week.

According to Axios, New York Fed President John Williams sees the central bank reducing interest rates later this year.

As of Friday, the dollar index had a weekly loss of 0.32 percent, little changed on the day at 103.96. The index bounced from a five-month low of 100.61 on Dec 28 and is still below the three-month high of 104.97.

Despite enduring economic strength, the greenback has gained value this year as Fed officials caution against cutting rates too soon as they seek to bring inflation back to 2 percent.

As of now, investors are awaiting further economic indicators for new clues about monetary policy.

BofA Global Research’s global head of G10 forex strategy, Athanasios Vamvakidis, thinks the dollar will begin to weaken in the second quarter after the Fed cuts rates in June and continues to do so once a quarter.

By year’s end, BofA expects the euro to reach 1.15 versus the greenback.

According to Vamvakidis, if the US economy remains so strong, the Fed might not be able to cut in June or even this year.

This week’s stock market surge in several countries may have reduced demand for the US currency, which is seen as a safe haven.

There was little change in the euro on the day at $1.0822. As of Feb 14, it is $1.0695, up from $1.0695 on Dec 28.

It is likely that Germany’s biggest economy will not avoid another recession, according to a survey released on Friday.

According to Christine Lagarde, ECB President, the relatively benign fourth quarter wage growth data is encouraging, but not quite enough to convince the bank that inflation is now under control.

THE WORST PERFORMER IN YEN

This year, the yen is the worst-performing currency among the G10, with the dollar gaining 6.7pc against the yen.

There was a 0.02 percent drop in the dollar to 150.5 yen on Friday.

Investors chased higher yields everywhere else, betting Japan’s rates would stay near zero for some time, driving the Japanese currency down for a fourth week.

As the Fed is expected to keep rates higher for longer, investors are selecting higher yielding currencies and selling or borrowing the yen.

BofA’s Vamvakidis said the Fed needs to start cutting rates to weaken the dollar/yen.

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