The U.S. dollar traded in the red today, dropping near its lowest point in seven months versus the other major currencies. Fresh data hinted that the U.S. Federal Reserve might slow the pace of its aggressive rate increases. Moreover, China continues to reopen its borders. This news strengthened risk-on currencies while sending the greenback lower.
In the last three months of 2022, the U.S. dollar suffered its biggest quarterly loss in twelve years. It was mainly due to speculation that the Federal Reserve wouldn’t hike its interest rates beyond 5%. Inflation also slowed, supporting such forecasts.
However, on Friday, two separate reports showed that the U.S. economy is growing and creating more jobs. Despite that, overall activity seems to be heading into recession territory. According to the monthly employment report, the worker’s number registering to receive non-farm payrolls increased, and wage growth also slowed.
The Institute for Supply Management also reported that in December, activity in the service sector shrunk for the first time in 2-1/2 years. CMC chief markets strategist Michael Hewson noted that U.S. CPI numbers for December are due this week. They will be the next waypoint for speculation as to where the terminal rate will end up. Investors expect further slowdown in the pace of price rises, but the main focus will be on core prices.
The dollar index plummeted by 0.2% at 103.54 against the basket of six major currencies today after plunging by 1.15% on Friday. The Fed hiked interest rates by 50 basis points in December after delivering four straight 75-basis-point hikes in 2022. The agency might keep interest rates higher for longer to hinder inflation.
On Monday, the Chinese offshore yuan skyrocketed to its highest level in five months versus the greenback. China is easing much of its strict zero-COVID policy rules. Traders hope that will bring about a swift economic recovery. Thanks to such optimism, the offshore yuan gained. At the same time, the Australian and New Zealand dollars surged forward.
Furthermore, the British Pound jumped by 0.42% to $1.2144, adding to Friday’s 1.5% surge. On the other hand, the euro gained 0.4%, exchanging hands at $1.0687. The common currency also soared by 1.17% on Friday.
Unlike other major currencies, the Japanese yen ended in the red. It declined by 0.1% to 132.20 per USD today. The Australian dollar climbed up by as much as 1.03% to $0.695, hitting its highest level against the greenback since August 30. The New Zealand dollar also jumped by 0.51% at $0.638, trading near its highest level in three weeks.
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