The dollar reached near an eight-month low against other currencies on Thursday. This is due to a gloomy U.S. corporate earnings season that has increased fears of a recession and as traders are on guard ahead of a number of central bank meetings next week.
The U.S. dollar index, which measures the dollar against a basket of currencies, is at 101.53, close to last week’s eight-month low of 101.51.
Trading is light on the day as Australia is on holiday and some parts of Asia are still away for the Lunar New Year.
U.S. corporate earnings and guidance that have been downbeat, along with a string of tech sector layoffs, have deepened fears of an economic downturn in the United States. This has led investors to lower their expectations on how much longer the Federal Reserve will need to aggressively raise interest rates.
Economists at Wells Fargo say, “There are now signs the U.S. economy may be slowing in a more meaningful manner.” They also believe, “With the Fed no longer leading the charge on interest rate hikes and U.S. economic trends set to worsen, we now believe the U.S. dollar has entered a period of cyclical depreciation against most foreign currencies.”
The Fed’s policy-setting committee will begin a two-day meeting next week. Markets have priced in a 25-basis-point interest rate hike, which is a step down from the central bank’s 50 bp and 75 bp increases seen last year.
Markets anticipate policymakers at the Bank of England and European Central Bank (ECB) to deliver 50 bp rate hikes when they meet next week. The ECB is more likely to remain hawkish.
Sterling is 0.12% higher at $1.2415, while the euro has risen 0.05% to $1.0920. It is close to its nine-month high of $1.0927 hit on Monday.
Jarrod Kerr, chief economist at Kiwibank, says, “The euro does draw a lot of attention.” He also notes that the Eurozone “had a favorable winter” and “the energy crisis that people were expecting hasn’t quite played out yet.”
The Canadian dollar last traded at 1.3393 per dollar, after the Bank of Canada raised its key interest rate to 4.5% but said it would likely hold off on further increases for now.
The Australian dollar edged 0.06% higher to $0.7107, following a jump of 0.8% on Wednesday due to data showing Australian inflation had reached a 33-year high last quarter. This supports the case for the Reserve Bank of Australia to raise interest rates again next month.
The New Zealand dollar steadied at $0.6480, after falling 0.43% in the previous session due to New Zealand’s fourth-quarter annual inflation coming in below the central bank’s forecast.
In Asia, the Japanese yen rose 0.3% to 129.21 per dollar. Bank of Japan (BOJ) policymakers debated the inflation outlook at their January meeting, with some warning that it could take time for wages to rise sustainably.
The BOJ kept ultra-low interest rates unchanged but strengthened a monetary policy tool to prevent the 10-year bond yield from breaching its new 0.5% cap. This decision defied market expectations of further monetary policy adjustments.