On Friday, the US dollar fell for a fourth consecutive day, reaching its lowest level in more than two months, as investors concluded that the majority of the US central bank’s recent hawkishness has already been priced in.
The dollar fell 0.2 percent to 94.62 against a basket of currencies on Friday, its lowest level since early November. Weekly, it is expected to fall 1.11 percent, the most since December 2020. For the first time since June 2021, it fell below a 100-day moving average on Thursday.
“The U.S. economy is firing on all cylinders, but the flattening yield curve and weaker dollar is sending a different message,” said Kenneth Broux, a foreign exchange strategist at Societe Generale in London.
“The correction of the dollar to November lows tells us investors see greater value elsewhere as earlier and more aggressive Fed tightening, embedded in rising real yields, threaten to weaken the economy and deflate asset valuations.”
US 10-year inflation-adjusted yields are up 40 basis points since the start of the year, threatening to derail a stock market rally and dampen economic prospects.
Indeed, with hedge fund dollar positioning near its highest level since early 2020 and terminal US rate pricing signaling peak rates below 2%, well below previous Federal Reserve rate cycle highs, investors were wary of adding to long positions.
Markets are growing increasingly concerned about the Fed’s intentions for economic growth, from tapering and shrinking the central bank’s balance sheet to likely higher interest rates, according to HSBC strategists.
“In other words, the market is unsure whether this is a good or bad thing for the USD,” they explained.
The dollar’s losses against its rivals were most pronounced against the Japanese yen and the Chinese yuan, where it fell by 0.4 percent and 0.3 percent, respectively.
While the safe-haven yen benefited from global stock market weakness, a Reuters report that the Bank of Japan is considering how to begin signaling an eventual rate hike sent the Australian dollar and US Treasury yields lower, weighing on the greenback as well.
The dollar’s downward spiral has accelerated this week, despite the fact that US interest rate futures have all but confirmed four rate hikes this year.
However, longer-dated yields have fallen slightly in response to Fed officials’ hawkish comments about shrinking the bank’s balance sheet, with Fed fund futures indicating that US interest rates will peak in mid-2023.
The euro is up more than 1% this week and has broken out of a range it has been stuck in since late November, reaching its highest level since November 11 at $1.1483. According to data from the trading platform IG, traders were largely neutral.
Sterling strengthened despite a political crisis that threatens Prime Minister Boris Johnson’s job, with the pound on track to post a fourth consecutive weekly gain of more than 0.5 percent. It was last purchased for $1.3730.
Cryptocurrencies have stabilized following a turbulent week, with Bitcoin prices remaining near their lowest levels in more than three months, just below $42,000.Dollar Falls To Its Lowest Level In Six Weeks Following elease Of US Jobs Report
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