SINGAPORE: The dollar found footing on Thursday (Dec 21) as a sudden end to a strong rally for US stocks had investors looking for safety and as an unexpected fall in British inflation hit the pound.
Sterling suffered its sharpest drop in two months overnight after British inflation dived below forecasts to an annual 3.9 per cent in October, its lowest for two years.
Traders scrambled to price rate cuts by May and the currency dropped 0.7 per cent to US$1.2638.
“The data suggests that inflation momentum in the United Kingdom is finally losing steam, allowing the Bank of England to join the global rate-cutting cycle next year,” said analyst Marios Hadjikyriacos of brokerage XM.
Elsewhere heavy selling in the final hour of equities trade on Wall Street sent a ripple of risk-aversion through markets, lifting what had been an under-pressure greenback from lows.
The Australian and New Zealand dollars retreated from five-month highs. The Aussie was last at US$0.6714, having touched its highest since July at US$0.6779 a day earlier. The kiwi traded at US$0.6257.
The euro was stable at US$1.0943. The yen found support at 143.5 per dollar, after having lost ground on Tuesday when the Bank of Japan left its ultra-easy policy settings unchanged.
Currency markets’ next focus is on Friday’s release of the US core personal consumption expenditure (PCE) index which is forecast by analysts to rise 0.2 per cent in November with the annual inflation rate slowing to its lowest since 2021 at 3.3 per cent.
Analysts suspect the balance of risk is on the downside and the slowdown in inflation means the Fed will have to ease policy just to stop real rates from rising.
But with 150 basis points of cuts already priced in next year, a massive rally in the bond market and the dollar index down more than 4 per cent from an early November high, some signs of caution are creeping in.
“Some adjustments in positions and paring back of risks ahead of (this) event … is only sensible,” said OCBC currency strategist Christopher Wong in Singapore.
“Liquidity is getting thinner as we get closer to the festive season, thin liquidity can exacerbate price movements on any data surprises.”
The dollar index, down 1 per cent for the year so far, was steady at 102.37 in early Asia trade on Thursday. Ten-year US Treasury yields hit a seven-month low of 3.847 per cent in New York.
China’s yuan slipped on the rising dollar in overnight offshore trade, and as traders see no let up in China’s accommodative monetary stance.
It was steady at 7.1480 to the dollar on Thursday.
Bitcoin leapt briefly above US$44,000 on Wednesday and was steady at US$43,667 on Thursday.