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Business Recorder
a day ago
- Business
- Business Recorder
US dollar sinks as inflation cools
NEW YORK: The dollar slumped on Thursday as weaker-than-expected inflation data suggested the Federal Reserve could resume cutting interest rates sooner rather than later, while the safe-haven yen and Swiss franc benefited from rising Mideast tensions. The euro soared to its highest in almost four years against the dollar. The greenback also fell to a two-month low versus the Swiss franc and a roughly one-week low against the yen. Data showed US producer prices increased less than expected in May, restrained by lower costs for services like air fares, further undermining the dollar. Wednesday's data also indicated cooling inflation, with a lower-than-expected rise in the US Consumer Price Index. Vassili Serebriakov, FX analyst at UBS in New York, said higher tariffs are not showing just yet on inflation data, although he noted US growth seemed to be slowing. 'We already priced in two cuts for the Fed this year, which was less than two last week,' said Serebriakov. 'The data is seen as potentially opening the window for the Fed cutting either a little bit sooner or a little bit more.' Futures tracking the Fed's policy rate showed rising bets the US central bank will deliver a pair of back-to-back interest rate cuts starting in September. Before the data, bets were for a rate cut in September followed by one in December. Thursday's US data also indicated the number of Americans filing new applications for unemployment benefits was unchanged at higher levels last week as labor market conditions continued to steadily ease. Investors rushed into safe-haven assets, with geopolitical risks in focus after US President Donald Trump said some US personnel were being moved out of the Middle East because 'it could be a dangerous place' and that Washington would not allow Iran to develop a nuclear weapon. A cocktail of rising Middle East tensions and concern over the fragility of the US-China trade deal drew investors into safe-haven assets. Analysts noted that the dollar serves as a key barometer of trade talk sentiment, while geopolitical instability prompted investors to buy Swiss francs and the yen. In morning trading, the dollar was down 1% at 0.8128 Swiss francs, after dropping to 0.8104, the lowest since April 22. The dollar slid 0.7% to 143.68 yen. Earlier in the session, it fell to a one-week low. The euro reached its highest since October 2021 at $1.1632 and was last up 0.9% at $1.1587. Some analysts said the euro gained support from a hawkish European Central Bank, which hinted at a pause in its year-long easing cycle after inflation finally returned to its 2% target. However, ECB policymaker Isabel Schnabel said on Thursday the strong euro exchange rate is being driven safe-haven investors in a positive confidence shock in Europe, and not by interest rate differentials. 'The dollar has lost some of its safe-haven characteristics,' said UBS' Serebriakov. 'And I think the euro just benefits from that as being the second most important global reserve currency by far, the second most important trade invoicing currency, and really just the first kind of alternative to the dollar.'
Business Recorder
21-05-2025
- Business
- Business Recorder
Dollar falls against yen
NEW YORK: The US dollar declined again on Tuesday, weighed down in part by the Federal Reserve's caution over the economy, while traders looked ahead to upcoming US talks with Japan that could include discussions on currencies and volatility. The dollar sold off broadly on Monday following last Friday's downgrade of the US sovereign rating by Moody's on deficit concerns. Now attention turns to a critical vote in Washington over US President Donald Trump's sweeping tax cuts. 'The Moody's downgrade was the catalyst earlier pushing yields higher and the dollar lower. Now yields have come off those highs and the dollar is still lower,' said Vassili Serebriakov, currency strategist, at UBS in New York. 'This highlights the underlying bias to sell the dollar. I don't think that bias has changed.' Fed officials speaking on Monday talked about the ramifications of the latest downgrade of the US government's credit rating and unsettled market conditions as they continued to navigate a very uncertain economic environment. The next Fed speakers on Tuesday, however, are unlikely to offer much new. In late morning trading, the dollar slipped against the yen, falling to a roughly two-week low of 144.095 yen. It was last down 0.1% at 144.64 yen, sliding in five of the last six sessions. Tuesday's sell-off in long-dated Japanese government bonds, that pushed 30-year yields to record highs and those on the 20-year to a nearly 25-year peak, pressured the yen earlier, analysts said. The yen has since recovered, however. Also on traders' radar is news around upcoming US-Japan talks, with Japanese Finance Minister Katsunobu Kato saying on Tuesday he expects any meeting with US Treasury Secretary Scott Bessent on exchange rates to be based on their shared view that excessive currency volatility was undesirable. Kato and Bessent are expected to meet on the sidelines of a G7 finance leaders' gathering to be held this week in Canada. 'Overhanging the FX market is that discussions in trade deals are going to include some currency component, which if it does is a dollar negative, because the US wants a weaker dollar against Asian currencies to narrow the Asian trade surplus with the States,' said Chris Turner, head of FX strategy at ING. Comments from Japan's top trade envoy on Tuesday that Tokyo was firm in its anti-tariff stance pointed to no easy off-ramp in the negotiations in the weeks and months ahead. Elsewhere, the Australian dollar fell sharply against the US dollar after the Reserve Bank of Australia cut benchmark interest rates by 25 basis points and left the door open to further easing in the months ahead. The Aussie was last down 0.9% at US$0.6401. Meanwhile, the Chinese yuan weakened against the dollar as China cut key benchmark lending rates while corporate seasonal demand for dollars remained high. But traders remain focused on the US economy, with Atlanta Federal Reserve President Raphael Bostic telling CNBC on Monday the US central bank may only be able to cut interest rates by a quarter point over the rest of the year given concerns about rising inflation stoked by higher tariffs.
