Dollar Rebounds In The Past Week As Rate Cut Hopes Soften

The week ended December 8 saw the Dollar staging a comeback after 3 weeks of decline. Waning optimism about a dovish Federal Reserve supported the Dollar’s rebound. The U.S. dollar gained against the euro, the British Pound, as well as the Australian Dollar. The dollar however weakened against the Japanese Yen amidst unexpected hints of a policy pivot by the Bank of Japan.

Amidst renewed hopes of rate cuts in 2024, the Dollar Index, a measure of the Dollar’s strength against a basket of 6 currencies commenced the week spanning December 4 – 8 on a weak note. The DXY, which had closed at 103.27 at close on December 1 opened at 103.19 on December 4 and dropped to the week’s low of 103.06 on Monday itself.

However, the more-than-expected ISM Services PMI reading, and the less-than-expected job openings data released on Tuesday stirred uncertainty regarding the Fed’s monetary policy, lifting the Dollar. Anxiety ahead of the monthly jobs data due on Friday and prospects of a less dovish Fed also helped the Dollar record strong gains against major currencies.

Data released by the U.S. Bureau of Labor Statistics on Friday showed the American economy added 199 thousand jobs in November as compared with 150 thousand in the previous month and expectations of 150 thousand. Unemployment rate, which was seen steady at 3.9 percent dropped to 3.7 percent.

Amidst indications of a resilient labor market, the Dollar Index or DXY climbed to the week’s high of 104.26 on Friday. The DXY eventually closed trading at 104.01, recording a jump of 0.72 percent during the week ended December 8. The Dollar’s rebound also came amidst a spurt in U.S. ten-year bond yields that rose to 4.2290, from 4.2090 a week earlier.

The EUR/USD pair dropped 1.1 percent during the week ended December 8. The pair which had finished at 1.0881 on December 1 dropped to 1.0761 by December 8. The pair’s trading range during the week was between 1.0896 touched on Monday and 1.0723 touched on Friday. Dovish comments from Isabel Schnabel of the ECB exacerbated the Euro’s plunge against the Dollar.

The sterling’s movements against the U.S. Dollar were akin to that of the euro. The GBP/USD pair slipped 1.2 percent during the week ended December 8, dropping to 1.2546 from 1.2700 a week earlier. The sterling also recorded a steady decline against the Dollar, falling from the weekly high of 1.2727 recorded on Monday to the weekly low of 1.2501 recorded on Friday. The sterling’s decline was despite attempts by Bank of England Governor Andrew Bailey to push back on rate cut expectations.

The Aussie’s decline against the greenback during the past week was much steeper at 1.4 percent. Amidst the Reserve Bank of Australia’s widely expected status quo on interest rates, the AUD/USD pair dropped from 0.6672 on December 1 to 0.6577 on December 8. RBA Governor’s comments that the bank needed more economic cues before considering any more changes to monetary policy also helped the Australian Dollar’s decline. Dismal imports data from China also magnified the Australian Dollar’s weakness. The weekly trading range for the pair was between the high of 0.6692 touched on Monday and the low of 0.6525 recorded on Thursday.

The yen’s strength, amidst the narrowing monetary policy divergence between the Fed and the Bank of Japan got a boost with the hints of a policy pivot by the Bank of Japan. The USD/JPY pair dropped to as low as 141.71 on Thursday, amidst speculation about BoJ moving away from negative interest rates. The pair eventually closed on Friday December 8 at 144.93, losing 1.28 percent from the level of 146.81 a week earlier. The week’s trading range was wider, between 147.52 recorded on Wednesday and 141.71 touched on Thursday.

The currency market’s anticipation of the Fed’s interest decision on Wednesday has lifted the DXY to 104.12. Markets in the meanwhile wait for the Consumer Price Inflation and Producer Price Inflation readings from the U.S. on Wednesday. In tandem, the EUR/USD pair has declined 0.06 percent to 1.0755. The GBP/ USD pair has jumped to 1.2572. The AUD/USD pair is at 0.6564. The USD/ JPY pair is currently at 146.32.

Forex News