By Karen Brettell
NEW YORK (Reuters) – The U.S. dollar gained on Tuesday as a sharp selloff last week was seen as overdone in the short-term, while the euro was dented by weak German data and the Australian dollar slid after that country’s central bank raised interest rates but hinted the hike was the last of the current tightening cycle.
The greenback dropped last week after Federal Reserve Chair Jerome Powell took a more dovish tone than expected at the conclusion of the U.S. central bank’s two-day policy meeting on Wednesday, when it left interest rates unchanged.
A softer-than-expected U.S. jobs report on Friday added to the dollar’s weakness.
“This dollar bounce we’re having yesterday and today is really a correction to what happened last week, which I would say was a one-two punch between the Fed and the jobs data,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
The which tracks the U.S. unit against six main peers, was up 0.37% at 105.64. It fell 1.4% last week, its steepest weekly decline since mid-July.
“If you look at the percentage of currencies that have been down versus the dollar over the last 26 weeks, it was approaching 100%, and data also showed very long dollar positioning … so we got a reversal of some of those positions triggered by the jobs report,” said Chester Ntonifor, foreign exchange strategist at BCA Research.
Traders are now pricing in only a slim chance of a further interest rate increase by the Fed and see three 25-basis-point rate cuts by next November.
As the U.S. economy slows, the dollar may also see further weakness.
Data next week is expected to show softening consumer price inflation and a decline in retail sales, which “feeds into the headwinds that people are talking about – the resumption of student loans, higher interest rates biting the consumer,” Chandler said,
“The dollar’s rally, especially since July, was fueled by a divergence and now we’re going to get convergence – but not because of good news from overseas, but more because we’re getting worse news from the U.S.,” he added.
This week investors will also focus on comments from Fed officials including Powell, who is due to speak on Wednesday and Thursday.
The U.S. central bank may have to do more to bring inflation back down to its 2% target given the recent run of resilient economic data, Minneapolis Fed President Neel Kashkari said on Tuesday.
Chicago Fed President Austan Goolsbee also said the U.S. central bank has made significant inroads in its battle to bring inflation back down to its 2% target. If that continues, he added, attention will turn to how long to keep interest rates at current levels.
The euro fell 0.37% to $1.0677 after data showed a larger-than-expected fall in German industrial production in September.
“The data comes after the German manufacturing PMI showed a deep contraction in October and suggests that the sector remains under pressure, acting as a drag on the German economy,” said Fiona Cincotta, senior financial market analyst at City Index.
The Australian dollar fell sharply after the Reserve Bank of Australia (RBA) raised interest rates by 25 basis points to combat stubborn inflation, as expected, but indicated that further tightening was unlikely.
RBA’s forward guidance was slightly watered down, which was perceived as dovish, resulting in the Australian dollar quickly giving back its gains after an initial knee-jerk rally, said Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC:).
The Australian currency was last down 1.18% at $0.6415, and is on course for its biggest one-day percentage decline in a month.
The U.S. dollar gained 0.36% on the Japanese yen to 150.59 yen, putting it back above the 150-level that has kept traders on edge in recent weeks as they look for signs of intervention from Tokyo.
The yen softened to 151.74 per dollar last week, edging closer to October 2022 lows that spurred several rounds of dollar-selling intervention.
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Currency bid prices at 10:00AM (1500 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 105.6400 105.2700 +0.37% 2.077% +105.7700 +105.2500
Euro/Dollar $1.0677 $1.0717 -0.37% -0.35% +$1.0720 +$1.0665
Dollar/Yen 150.5850 150.0700 +0.36% +14.88% +150.6850 +149.9500
Euro/Yen 160.77 160.82 -0.03% +14.59% +161.0300 +160.4400
Dollar/Swiss 0.9008 0.8994 +0.23% -2.51% +0.9017 +0.8990
Sterling/Dollar $1.2298 $1.2339 -0.33% +1.69% +$1.2346 +$1.2276
Dollar/Canadian 1.3754 1.3700 +0.40% +1.52% +1.3768 +1.3695
Aussie/Dollar $0.6415 $0.6489 -1.18% -5.93% +$0.6501 +$0.6405
Euro/Swiss 0.9617 0.9638 -0.22% -2.81% +0.9647 +0.9612
Euro/Sterling 0.8680 0.8677 +0.03% -1.85% +0.8691 +0.8678
NZ $0.5924 $0.5964 -0.66% -6.70% +$0.5965 +$0.5913
Dollar/Dollar
Dollar/Norway 11.1870 11.0600 +1.08% +13.91% +11.1970 +11.0720
Euro/Norway 11.9478 11.8429 +0.89% +13.86% +11.9494 +11.8360
Dollar/Sweden 10.9429 10.9127 -0.04% +5.14% +10.9633 +10.8796
Euro/Sweden 11.6845 11.6889 -0.04% +4.80% +11.7124 +11.6564
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