The U.S. dollar traded near its lowest level in a month against major currencies on Friday. A stronger euro weighed on the currency as investors bet on earlier European interest rate increases. In addition, an equity rally decreased demand for safe-haven assets. The New Zealand dollar also tumbled down amidst a decline in consumer confidence.
The dollar index climbed up by 0.1% to 93.462 against the basket of six major rival currencies. Despite that, it remained close to 93.277; a new low reached on Thursday. Meanwhile, the Euro plummeted down by 0.1% to $1.1666 after skyrocketing as high as $1.1692 overnight for the first time since September 28.
Against the safe-haven Japanese yen, the greenback remained mostly unchanged, trading at 113.595. It continued to ease back gradually from a nearly three-year high of 114.695 hit last week. An index of global shares soared to almost a record high this week. An earnings-driven rally to consecutive record peaks on Wall Street supported it.
The Euro surged forward on Thursday after traders interpreted comments by European Central Bank President Christine Lagarde as not going far enough in affirming the central bank’s dovish stance.
TD Securities strategists stated that Lagarde’s pushback was not forceful enough. It opened the way for the common currency to test $1.1680 in the near term. Still, extrapolating the currency’s strength beyond that seems unlikely a week ahead of the Federal Reserve’s meeting, where the policymakers will announce taper.
What important events should traders look out for?
The U.S. Federal Reserve ends its two-day meeting on Wednesday. The traders widely expect the agency to begin stimulus tapering, with interest rate lift-off following next year. Investors will be observing economic gauges from both regions later in the day. In Europe, a preliminary reading of the consumer price index will give them some hints, while the U.S. will release personal income and spending data.
Forex markets have become a little volatile around central bank activity. On Wednesday, hawkish comments from the Bank of Canada caused big moves. Furthermore, the Reserve Bank of Australia decided not to suppress a rise in the yield of a bond in the middle of its stimulus program on Friday, leading experts and investors to forecast policymakers will abandon their yield control program at a meeting on Tuesday.
Commonwealth Bank of Australia strategist Carol Kong noted that the difficulty for the bank is that this will also require a change in RBA’s forward guidance on the expected timing of the first rate hike. Kong also added that he doubts if the bank will be able to match current market pricing. The latter is priced for a rate hike in early 2022. However, the RBA hints that inflation pressures may be building earlier than anticipated. That means rate hikes are more likely to happen before 2024.
On Friday, the Australian dollar declined by 0.1% to $0.7537 after skyrocketing to the highest level since early July at $0.75555 during the previous session. The New Zealand dollar also tumbled down by 0.3% to $0.7177 due to a gauge of consumer confidence plunging sharply in October.
How did the British Pound fare?
Sterling traded almost flat at $1.3784 on Friday. It continued to fluctuate near a one-month high hit last week. The British currency has been buffeted recently by speculation over whether the Bank of England would announce an interest rate hike at its meeting next week.
In Asia, the Malaysian ringgit soared to its highest level in more than a month on Friday, supported by hopes that the authorities would release an expansionary fiscal 2022 budget later today. However, Asian stocks remained mostly weak, with Philippine shares tumbling down by 1%.
On the other hand, the Thai baht surged forward by 0.4% today. The Philippine peso, the Singapore dollar, and the Indonesian rupiah exchanged hands flat to higher against a struggling greenback.
Overall, the ringgit jumped by 0.2% as traders awaited the 2022 budget. The finance ministry expects August’s report to show that its fiscal deficit widened this year due to continued spending.