The U.S. dollar climbed on Friday, gaining slightly after the previous session’s rally. However, the forex markets were muted as investors waited for fresh U.S. employment data. The report is due later today and might influence the Federal Reserve’s plans for future interest rate hikes.
The Fed increased rates by 25 basis points at its meeting on Wednesday. That’s lower than the previous 50 bps hikes. The agency is trying the temper its aggressive policy as inflation weakens and the country’s economy is moving towards a recession. However, this news pushed the greenback into the red. The currency had suffered substantial losses until it rebounded suddenly on Thursday.
The dollar jumped against the Euro after the European Central Bank’s policy decision. The ECB hiked rates by 50 bps on Thursday, reaching 2.5%. Consequently, the common currency declined. It exchanged hands lower by 0.1% to $1.09 today. Despite that, the Euro is much higher than its 20-year low of $0.953 reached in September. Some analysts think that the ECB might be done with rate raises after one more hike in March.
Alvin Tan, the head of Asia FX strategy at RBC Capital Markets, noted that the dollar strength could have another source. Blue chip tech companies, such as Apple (AAPL.O), Alphabet (GOOGL.O), and Amazon (AMZN.O), reported lower earnings recently. Investors preferred to avoid riskier currencies after this news. But the dollar soared thanks to its safe-haven status.
How is the greenback trading now?
The dollar index edged up by 0.1% to 101.89 against the basket of six major currencies on Friday. Another safe-haven currency – the Japanese Yen, also surged forward. It gained against the dollar, as well, exchanging hands at 128.66 per USD.
In Europe, the Sterling plummeted by 0.18% today. It traded at $1.22 at last. The pound also shaved off 1.2% in the previous session. The Bank of England increased interest rates at its meeting yesterday. The bank also stated that inflation was decreasing in the country at last.
Meanwhile, the Australian dollar dropped by 0.35% to $0.705 on Friday. The Canadian dollar also declined. The greenback soared by 0.35% versus the latter at C$1.336.
Market participants’ main focus remains on U.S. nonfarm payroll data. According to polls, economists expect the report to show 185,000 additional jobs in January. While that’s not a bad result, this number is lower compared to the 223,000 new jobs added in December.
Analysts think the U.S. dollar will likely continue trading under pressure short term. If the Fed decides to pause its tightening policy, that will also weigh heavily on the greenback. The overall consensus on the market is that the dollar remains low unless the markets shift to a risk-off mood.
What about the EM currencies?
Most Asian EM currencies decreased against the stronger greenback on Friday. On the other hand, Asian stock markets traded in the green. In Jakarta, equities surged forward by 0.7%, hitting more than their one-month peak. Moreover, they remained on track for a 0.6% weekly rise.
At the same time, shares in Bangkok, Seoul, and Singapore rallied, gaining between 0.2% and 0.4%. However, some stocks suffered losses. Malaysian shares tumbled by 0.1%, while Philippine stocks shaved off 1%.
MUFG Bank analysts noted that if the U.S. employment data comes out strong, that could bolster the U.S. dollar and send EM currencies lower. Poon Panichpibool, the markets strategist at Krung Thai Bank, also stated that investors received the major central banks’ recent policy decisions as a sign that they are becoming dovish. However, the greenback’s rebound, caused by the risk-off mood, weighed on the EM currencies.
On Friday, the South Korean won plummeted by 0.7%. The Indonesian rupiah also dropped by 0.1%, along with the Indian rupee. The rupiah remained on track for a fourth consecutive weekly gain. However, the rupee seemed set for a 0.9% decline for this week.
Traders are focusing on the fourth-quarter gross domestic product data in Indonesia. It’s due on February 6. According to forecasts, economic growth will likely show a decrease in the last quarter. Commodity and energy prices plummeted, weighing on exports.
Investors fear the global economic recession will cause many drawbacks. Adani group shares plunged low in India, losing $115 billion in market value this week.
Meanwhile, Malaysia’s ringgit tumbled by 0.6%. Before today’s session, the currency enjoyed three consecutive weeks of gains.