Dollar stuck near nine-month low vs euro as yen bounces
Corrects paragraph 10 to show euro/dollar trading at $1.08725 not $1.8725; no other changes to text
By Amanda Cooper
LONDON, Jan 24 (Reuters) -The dollar hovered near a nine-month low against the euro and surrendered recent gains against the yen on Tuesday, as traders weighed the risks of a U.S. recession against the outlook for Federal Reserve monetary policy.
Euro zone data on Tuesday reinforced the view that the economy is surviving a winter of intense price pressures reasonably well, analysts said.
The U.S. dollar index =USD - which measures the greenback against a basket of six major currencies, fell 0.1% to 101.93, heading back towards the 7-1/2-month low of 101.51 reached last week.
"The U.S. is no longer the cleanest shirt in the global economic laundry," said Ray Attrill, head of foreign-exchange strategy at National Australia Bank, who expects the dollar index to fall to 100 by end-March and the euro to rise to $1.10.
"That's integral to our bearish U.S. dollar view, that the U.S. is not going to be the global growth leader."
Money market traders see only two more quarter-point rate hikes by the Fed to a peak of around 5% by June, before it starts cutting rates later in the year. The Fed itself has insisted it still has 75 bps of increases in the pipeline.
By contrast, the euro has gained nearly 0.8% in the last week, lifted by a barrage of European Central Bank officials signalling that tackling inflation is going to require more rate rises than markets currently anticipate.
Surveys on Tuesday showed euro zone business activity made a surprise return to modest growth in January, and service-sector activity in Germany expanded for the first time since June, although price pressures remained sticky.
"There is probably enough in there to cement another 50 basis points in increases from the ECB," TraderX market strategist Michael Brown said.
The euro EUR=EBS, which traded around its highest since last April on Monday, was last flat against the dollar at $1.08725, narrowly down from a session high of $1.0898.
Meanwhile, ECB President Christine Lagarde on Monday reiterated that the central bank will keep raising interest rates quickly to tame inflation, which is still more than 5 times its target rate of 2%.
Elsewhere, the dollar fell 0.4% to 130.18 yen JPY=EBS, breaking a two-day rally.
Last week, the dollar fell as low as 127.215 yen, its weakest since May, before a Bank of Japan policy review as investors bet the BOJ would begin to end its stimulus programme. The BOJ, however, left policy unchanged, giving the dollar some respite.
But analysts believe a shift by the BOJ will happen sooner, rather than later, as policymakers make tweaks to their yield curve control (YCC) mechanism, which pins short-term rates at -0.1% and keeps 10-year yields in a band around zero.
"Clearly, the market regards the YCC policy as well past its use-by date, and it's only a matter of time - and probably months rather than quarters - until the BOJ sounds the death knell on it," said NAB's Attrill, who predicts dollar-yen will decline to 125 by end-March.
"The era of yen weakness is rapidly falling behind us."
The more volatile G10 currencies edged up against the dollar. Sterling GBP=D3 and the New Zealand dollar were both last up 0.2% at $1.2399 and $0.6504, respectively, while the Australian dollar AUD=D3 was flat around $0.7023, hovering close to its highest in five months.
World FX rateshttps://tmsnrt.rs/2RBWI5E
Additional reporting by Kevin Buckland in Tokyo; Editing by Jacqueline Wong, Simon Cameron-Moore and Christina Fincher
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.