NEW YORK : The dollar slid on Thursday in choppy trading, as a slew of data continued to show that the U.S. economy was slowing down in the wake of multiple hefty interest rate hikes from the Federal Reserve, with the market anticipating a pause in tightening this year.
“The market is just one-way right now: short dollars and long bonds. It’s going to take some time to change that direction because the current data flow is not favorable to the Fed’s stance that rates are going to stay higher for longer,” said Mazen Issa, senior FX strategist at TD Securities in New York.
“That may be what ends up happening. But it’s harder for the Fed’s message to resonate for markets after so much tightening has been done and also what the data flow has shown.”
The yen, on the other hand, rallied due in part to expectations that the Bank of Japan (BOJ) will eventually shift away from ultra-loose monetary policy.
In the United States, Thursday’s data showed overall housing starts declined 1.4 per cent to a rate of 1.382 million units last month. Building permits dropped as well, down 1.6 per cent to a rate of 1.330 million units.
Manufacturing activity in the Mid-Atlantic region softened as well in January. The Philadelphia Fed’s monthly manufacturing index rose to negative 8.9 this month, from negative 13.7 in December, an improvement from the median estimate of negative 11.
The survey also showed inflation pressures. The latter – measured by the prices paid index – dropped to 24.5 in January from 36.3 last month. That was the lowest in nearly 2-1/2 years.
However, initial claims for state unemployment benefits dropped 15,000 to 190,000 for the week ended Jan. 14. Economists polled by Reuters had forecast 214,000 claims for the latest week.
In afternoon trading, the dollar fell 0.4 per cent against the yen to 128.455 yen, a day after the BOJ’s decision to stand pat on its ultra-loose monetary policy.
The rebound in the yen also reflects “the fact that market participants are still speculating (on) a shift in the Bank of Japan’s policy,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.
The euro rose 0.4 per cent against the dollar to $1.0831. It hit a nine-month high of $1.089 on Wednesday.
European Central Bank President Christine Lagarde on Thursday said inflation is far too high and the ECB will keep raising interest rates.
“We shall stay the course until such a time when we have moved into restrictive territory for long enough so that we can return inflation to 2 per cent in a timely manner,” she said in a panel discussion during the World Economic Forum in Davos, Switzerland.
The dollar index, which measures the U.S. currency’s value against a basket of peers, was last up 0.3 per cent at 102.04.
Fed officials were in full force once again on Thursday to reinforce their message on rates. Boston Fed President Susan Collins said the Fed will probably need to raise interest rates to “just above” 5 per cent and then hold them there for a period.
Fed Vice Chair Lael Brainard, for her part, said despite the recent moderation in inflation, it remains high and “policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2 per cent on a sustained basis.”
The Australian dollar slumped 0.4 per cent to US$0.6916, further pressured by a surprise dip in Australian employment in December.
The New Zealand dollar also fell, down 0.7 per cent at US$0.64, after New Zealand Prime Minister Jacinda Ardern on Thursday made a surprise announcement that she would step down no later than early February and not seek reelection.
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Currency bid prices at 3:02PM (2002 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 102.0400 102.3300 -0.27 per cent -1.401 per cent +102.4800 +102.0100
Euro/Dollar $1.0831 $1.0795 +0.33 per cent +1.08 per cent +$1.0839 +$1.0782
Dollar/Yen 128.4500 128.9400 -0.36 per cent -2.01 per cent +128.8500 +127.7700
Euro/Yen 139.14 139.16 -0.01 per cent -0.83 per cent +139.4200 +137.9200
Dollar/Swiss 0.9152 0.9166 -0.14 per cent -1.01 per cent +0.9189 +0.9149
Sterling/Dollar $1.2392 $1.2349 +0.34 per cent +2.46 per cent +$1.2394 +$1.2314
Dollar/Canadian 1.3453 1.3493 -0.29 per cent -0.70 per cent +1.3520 +1.3448
Aussie/Dollar $0.6920 $0.6941 -0.29 per cent +1.53 per cent +$0.6948 +$0.6872
Euro/Swiss 0.9913 0.9888 +0.25 per cent +0.18 per cent +0.9931 +0.9885
Euro/Sterling 0.8738 0.8743 -0.06 per cent -1.20 per cent +0.8787 +0.8723
NZ $0.6397 $0.6445 -0.70 per cent +0.80 per cent +$0.6449 +$0.6369
Dollar/Dollar
Dollar/Norway 9.8865 9.9220 -0.27 per cent +0.83 per cent +9.9650 +9.8925
Euro/Norway 10.7149 10.6878 +0.25 per cent +2.11 per cent +10.7683 +10.6900
Dollar/Sweden 10.3099 10.3337 +0.12 per cent -0.94 per cent +10.3800 +10.2520
Euro/Sweden 11.1671 11.1539 +0.12 per cent +0.16 per cent +11.2017 +11.0968