The U.S. dollar gained some ground against the euro on Monday, after falling to its lowest level in almost two months. Investors are waiting for more clues from the Federal Reserve on whether it will raise interest rates again or pause its tightening cycle.
The Fed surprised the markets last week by signaling that it may be done with hiking rates for now, citing slowing global growth and low inflation. Fed Chair Jerome Powell will speak twice this week, and his tone will be closely watched for any changes.
Other Fed officials will also give their views on the economy and monetary policy. Fed Gov. Lisa Cook said on Monday that she hopes the current interest rate is enough to boost inflation to the Fed’s 2% target.
The dollar’s weakness was also driven by a disappointing jobs report on Friday, which showed that the U.S. economy added fewer workers than expected in October. The next major data point will be the consumer price inflation report for October, due next week.
“If we do get a weak print … then the focus shifts toward how much easing is being priced in for next year. If not, if we still do get a strong print, then we could see some dip buying in the dollar against several other currencies,” said Bipan Rai, North American head of FX strategy at CIBC Capital Markets.
The dollar index, which measures the greenback against a basket of six major currencies, rose 0.13% to 105.19, after hitting 104.84 earlier, the lowest since Sept. 20. The euro slipped 0.06% to $1.0723, after reaching $1.0756, the highest since Sept. 13.
The euro zone economy, however, remains weak compared to the U.S., and that may limit the euro’s gains. A survey on Monday showed that business activity in the region contracted further in October, raising the risk of a recession.
The dollar also advanced against the Japanese yen, rising 0.41% to 149.98. The yen has been under pressure as Japan faces political uncertainty and a surge in COVID-19 cases. The yen touched 151.74 per dollar last week, near the level that triggered intervention by the Bank of Japan in October 2022.
The Australian dollar fell 0.34% to $0.6491, after hitting a three-month high of $0.6523. The Reserve Bank of Australia is expected to raise its key interest rate by 25 basis points to 4.35% on Tuesday, but also signal that further hikes are unlikely.
The dollar’s outlook remains uncertain, as the U.S. faces its own challenges, such as the debt ceiling, the infrastructure bill, and the midterm elections next year. The dollar may also react to global developments, such as the COP26 climate summit, the Iran nuclear talks, and the China-Taiwan tensions.
The dollar’s role as the world’s reserve currency, however, gives it some resilience, as it is still seen as a safe haven in times of turmoil. The dollar also benefits from the U.S.’s relatively high interest rates and strong economic fundamentals.
Source: Reuters
