Euro Rises to 14-Month Peak as Dollar Weakens
On Wednesday, the dollar hit a 14-month low against the euro as traders wagered that the Federal Reserve will make another significant rate cut at its November meeting due to waning labor optimism. The yuan, on the other hand, eased as there were increasing concerns about the impact of a new round of Chinese stimulus.
On Tuesday, the dollar experienced a significant decline in value following the release of data that indicated the most significant decline in U.S. consumer confidence in three years in September. This decline was attributed to the growing concerns regarding the labor market.
Karl Schamotta, chief market strategist at Corpay in Toronto, stated that the narrowing of the labor market differential, which is a sign of the demand and supply conditions in the employment market, was a very poor omen for the U.S. economy.
“Markets are interpreting this as a signal that the Federal Reserve is highly likely to implement a second emergency-sized reduction at its November meeting,” he continued.
According to the CME Group’s FedWatch Tool, traders are currently estimating a 59% likelihood of a 50-basis point reduction at the Fed’s meeting on November 7, which is an increase from 37% a week ago, and a 41% likelihood of a 25-basis point reduction.
The Federal Reserve initiated an anticipated series of interest rate cuts last week with a half-percentage-point reduction that was more substantial than usual. Fed Chair Jerome Powell stated that the reduction was intended to demonstrate the policymakers’ dedication to maintaining a low unemployment rate in light of the recent decrease in inflation.
The euro reached $1.1214, its highest level since July 2023, after a 0.04% increase at $1.1185. The dollar index increased by 0.25% to 100.48, following a decline to 100.21 on September 18, which was the lowest level since July 2023. The dollar increased by 0.69% to 144.2 Japanese yen.
According to Jane Foley, senior forex strategist at Rabobank, the euro’s resilience was partially fueled by a belief that a more optimistic prognosis for Chinese demand could reverberate through Germany and Europe as a result of China’s stimulus.
She stated that the euro has performed “exceptionally well” against the dollar this week, despite concerns regarding the French budget and lackluster German economic data.
A day after China’s central bank unveiled its largest stimulus since the pandemic on Tuesday to address the economy’s deflationary state and return it to the government’s growth objective, the Chinese yuan retraced its previous gains.
In offshore trading, the dollar was last up 0.25% at 7.028 yuan. The Chinese currency had previously attained a high of 6.9952, the highest level since May 2023.
Riskier currencies, including those in emerging markets that had experienced a surge in response to the stimulus, also experienced a decline.
Schamotta stated, “We are witnessing a number of risk-sensitive asset classes essentially retracing from the levels that were achieved in the aftermath of that announcement. This is primarily due to investors’ skepticism regarding the effectiveness of the measures that were announced in stimulating growth in the real economy.”
The Australian dollar, which is considered a more liquid proxy for the yuan, also experienced a decline in line with the country’s declining inflation. Core inflation reached its lowest level since early 2022, while Australian domestic consumer prices eased to a three-year low in August.
The Australian dollar was last reported at $0.6864, representing a 0.39% decline. The previous peak was $0.6908, which was recorded in February 2023.
Bitcoin decreased by 0.73% to $63,758 in the cryptocurrency market.
