Written by Convera’s Market Insights Team
Greenback gains after Dallas Fed
The US dollar was stronger on Monday, recovering after losing ground last week. The USD was helped by a better-than-expected Dallas Fed manufacturing index, which came in at -11.3 versus the -27.4 in the previous month.
The Australian and kiwi dollars both underperformed with the AUD/USD down 0.4% and the NZD/USD also 0.3% lower. The greenback was mostly higher in Asia, with the USD/SGD up 0.1% and the USD/CNH flat.
USD index records first fall of the year
Global stock markets stretched to fresh record highs last week, bonds were sold off and US yields touched fresh three-month highs. However, FX has detached somewhat from rate spreads recently, with the US dollar index recording its firstly weekly fall of 2024 as investors took a breather after reducing bets for future Federal Reserve (Fed) rate cuts.
Signs of upside exhaustion
It’s all about inflation this week, with the dollar starting out on a firmer foot amid markets pricing in upside risk for the core US PCE reading.
Improved risk sentiment supported demand for global equities and high beta currencies last week, weighing on the USD, but the buck extended gains against the lower-yielding JPY and CHF. Given the dollar’s ongoing yield advantage, it’s unlikely we’ll see a big shift in sentiment away from the USD, but we’re already witnessing signs of exhaustion to the upside. The failure of the dollar index to hold above its 100-week moving average and pulling back sharply from the 105 level begs the question: have we already seen the top of the DXY for 2024?
Busy week ahead for markets
The US dollar has been the clear outperformer so far this year. Markets have repriced the outlook for global rate cuts as the US economy continues to show resilience, however once the Fed starts cutting interest rates the dollar could lose its shine. For more cues, investors are poised to return to a heavy economic calendar, alongside several speeches by Fed policymakers.
Key data points to monitor include PCE price indexes (the Fed’s preferred measure of inflation), on Thursday, where forecasts anticipate a 0.3% increase for January, a tick up from the 0.2% gain observed in December, while core prices are expected to rise at a faster pace of 0.4%. The ISM manufacturing PMI, durable goods orders, a second estimate of fourth-quarter GDP data, new and pending home sales and Case-Shiller home prices, will also be closely monitored throughout the week.
US 10-yield over 2% up on the week
Table: 7-day currency trends and trading ranges
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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