Dollar eases in Asian trade on expectations of Fed pause

FILE PHOTO: United States one dollar bills seen on a light table at the Bureau of Engraving and Printing in Washington
FILE PHOTO: United States one dollar bills on a light table at the Bureau of Engraving and Printing in Washington Nov. 14, 2014. REUTERS Gary Cameron

January 8, 2019

By Vatsal Srivastava

SINGAPORE (Reuters) – The dollar fell versus other major currencies for a fourth straight session on Tuesday, as investors grew increasingly convinced the Federal Reserve will not raise interest rates this year amid uncertainties over the U.S. economy.

The dollar index <.DXY> fell marginally to 95.64. It dipped 0.1 percent against the yen <JPY=> and eased marginally versus the euro <EUR=> and sterling <GBP=> in early Asian trade.

On Friday, Fed Chairman Jerome Powell told the American Economic Association the Fed is not on a preset path of rate hikes and it will be sensitive to the downside risks markets are pricing in.

On Monday, Powell’s colleague Raphael Bostic, the Atlanta Fed President, added to the central bank’s dovish tone. Bostic, who is not a voting member of the Federal Open market Committee this year, said the Fed may only need to raise rates once in 2019.

“The Fed is listening to the market and has acknowledged flashing market signs,” said Sim Moh Siong, currency strategist at Bank of Singapore.

“U.S. inflation has been well behaved so far and so the Fed does have room to pause on its rate hike cycle,” added Sim.

The dollar had gained 4.3 percent in 2018 as the Fed hiked rates four times on the back of a strong domestic economy, falling unemployment and rising wage pressures.

But market expectations for further Fed tightening this year have shifted markedly in the last few months, with some traders now expecting even a rate cut this year.

Financial markets have been rattled by heightened worries about slowing global growth, especially in the United States and China, though data on Friday showed strong U.S. job growth.

Expectations of no further rate hikes this year is likely to keep the greenback under pressure.

The euro <EUR=> was fetching $1.1478, gaining 0.05 percent. The single currency has gained around 1.5 percent over the last three trading sessions as the outlook towards the greenback worsened.

The euro’s recent strength has surprised some analysts as growth and inflation remain weak in the eurozone, well below the European Central Bank forecasts.

“Having consolidated in a 200-pip range for a large part of the past 2 months, the pair is prime for a breakout,” said Kathy Lien, managing director of currency strategy at BK Asset Management in a note.

The British pound <GBP=> changed hands at $1.2787, gaining 0.05 percent on the dollar.

Elsewhere, the Australian dollar <AUD=> was lower by 0.07 percent at $0.7141. The Aussie dollar has gained for three straight sessions buoyed by stimulus measures in China, its largest trade partner.

(Reporting by Vatsal Srivastava; Editing by Kim Coghill)

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