The U.S. dollar rallied Monday while Euro declined. Why’s that?
The U.S. dollar surged forward on Monday, rallying against the basket of six major currencies. Consequently, the euro tumbled down by 0.36% to $0.9932, while the British Pound shaved off 0.67% to $1.1537. Moreover, the greenback soared by 0.82% versus the Japanese yen, exchanging hands at 148.6.
Traders are waiting for the data releases due this week. Some central banks also have rate-setting meetings, including the U.S. Federal Reserve and the Bank of England. These meetings are important as they will set the tone for the currencies’ prices.
Despite today’s gains, the U.S. dollar ends October in the red – its first losing month since May. Investors expected the Fed to signal less aggressive rate hikes at its policy meeting this Tuesday.
Samy Chaar, the chief economist at Lombard Odier, noted that forex markets are in wait-and-see mode ahead of the FOMC meeting on Wednesday. Some other central banks are already showing a bit more balanced tone, tampering with their aggressive rate-hiking pace. However, it’s still unclear whether the Federal Reserve chooses the same course. While it’s unlikely that the agency will become dovish, it may decide to move on a more balanced approach instead of continuing to be hawkish.
What do the experts forecast?
Analysts expect the Fed to announce another 75-basis-point rate increase when Wednesday’s meeting concludes. That would be its fourth consecutive increase at this rate. At the same time, market pricing showed approximately a 50% chance of a 50 basis points hike at the agency’s December meeting.
Meanwhile, at their October meetings, the Canadian and Australian central banks increased rates by less than traders expected. Last week, European Central Bank issued a 75 basis point hike, also hinting at a dovish stance.
The common currency showed little reaction to the data released yesterday. According to it, eurozone inflation skyrocketed more than expected at 10.7%. Chaar noted that markets already had the national inflation data Thursday and Friday to digest; thus, the eurozone data was essentially old news.
Furthermore, fresh Japanese data released on Monday showed that the country spent a record 6.3499 trillion yen to boost the Yen this month. The bank decided to intervene after the currency ended at record lows.
In Asia, the Chinese yuan also plummeted against the dollar after Monday’s data showed that the country’s factory activity dropped in October. Weakening global demand and strict domestic coronavirus restrictions weighed on the latter. The offshore yuan exchanged hands at 7.32 at last, shaving off 0.74% versus the greenback.
