Dollar eases on bets US rates have peaked

25 Nov, 2023

NEW YORK: The dollar slipped against a basket of currencies on Friday, on pace for its second straight weekly decline, after data showed US business activity held steady in November, but employment in the private sector declined.

With US markets in for a shorter Black Friday trading session, following Thursday’s market closure for the Thanksgiving holiday, currencies were trading in a relatively narrow range.

“It’s incredibly quiet, as you’d expect on the day after Thanksgiving, with liquidity still pretty thin, and volumes again on the light side,” said Michael Brown, market analyst at Trader X in London.

“I think what we’re seeing is a classic case of the market taking the ‘path of least resistance’,” Brown said.

S&P Global said on Friday that its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, was unchanged at 50.7 this month as a modest rise in services sector activity offset a contraction in manufacturing. A reading above 50 indicates expansion in the private sector.

The lack of strong order growth resulted in businesses shedding workers, with the survey’s employment index dropping to 49.7. That was the first contraction since June 2020 and followed a reading of 51.3 in October.

An easing labor market will aid the Fed’s fight against inflation.

“The ‘US exceptionalism’ narrative appears to have run its course,” Trader X’s Brown said.

The dollar index, which measures the US currency with six peers, eased 0.3% to 103.43, staying close to the two-and-a-half month low of 103.17 it touched earlier this week. For the week, the index was down 0.4%, after having slipped 1.9% last week.

The index is on course for its weakest monthly performance in a year on growing expectations the Federal Reserve is done with raising interest rates and could start cutting them next year.

Elsewhere, the Japanese yen was about flat against the dollar at 149.53, after strengthening following data that showed Japan’s core consumer price growth picked up slightly in October.

The data reinforced investors’ views that stubborn inflation may push the BOJ to roll back monetary stimulus before long.

ING economists said they expect the BOJ to move away from its super-accommodative stance next year.

“We believe that the BOJ may scrap the yield curve programme as early as the first quarter of next (year), as Japanese government bonds appear to have stabilised,” they said.

The bank will “then begin its first rate hike in Q2 2024 if wage growth continues to accelerate next year”.

The nationwide core consumer price index (CPI), which excludes volatile fresh food costs, rose 2.9% year on year in October, government data showed on Friday, against 3.0% expected by economists in a Reuters poll.

The euro was 0.28% higher at $1.0935 after data confirmed an initial estimate published in late October that showed Germany’s economy shrank slightly in the third quarter compared with the previous three months.

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