THE greenback fell against the euro on Friday (Mar 1) on weaker-than-expected US economic data, but gained against the Japanese yen after Bank of Japan (BOJ) governor Kazuo Ueda said it was too soon to declare victory on inflation.
US manufacturing slumped further in February, with a measure of factory employment dropping to a seven-month low amid declining new orders. Construction spending, which had been expected to increase, also fell in January.
Economists at Goldman Sachs cut their gross domestic product (GDP) estimate for the first quarter, by 0.2 percentage points to 2.2 per cent, after the data.
The US dollar has been largely range-bound, with traders focusing closely on economic data for any new clues on when the Federal Reserve is likely to begin cutting interest rates.
Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, noted that “the US is the key side of it” in terms of driving currency moves. The greenback had looked like it was going to break higher in the past few days, but failed after Friday’s turn lower, he added.
The greenback was also pulled down in line with shorter-dated Treasury yields on Friday, after Fed governor Chris Waller said he would like the US central bank to address a reset of the balance sheet, towards shorter-term Treasury bills that would better match the short-term policy rate that the Fed controls as its key monetary policy tool.
The next major US economic release will be February’s employment report due next Friday.
The US dollar index fell 0.23 per cent to 103.87. The euro gained 0.31 per cent to US$1.0837.
Data on Friday showed that eurozone inflation dipped last month but underlying price growth remained stubbornly high, adding to the case for the European Central Bank (ECB) to hold interest rates at record highs a bit longer before starting to ease policy towards mid-year.
The eurozone’s currency has traded within a range of US$1.07 to US$1.11 since November, as investors struggle to work out when the ECB and the Fed will start cutting rates.
“We are seeking out fresh news,” said Jane Foley, head of FX strategy at Rabobank. “Whether that’s going to come from the ECB and a change in expectations, or further alteration of the market’s view about the ability of the Fed to cut even in June.”
Japanese inflation in focus
The US dollar rose against the yen after BOJ’s Ueda said it was too early to conclude that inflation was close to sustainably meeting the central bank’s 2 per cent inflation target, and stressed the need to scrutinise more data on the wage outlook.
That reversed a move from Thursday when BOJ board member Hajime Takata said that the central bank must consider overhauling its ultra-loose monetary policy, including an exit from negative interest rates and bond yield control.
Inflation expectations and the path of BOJ policy will likely depend on negotiations between large firms and unions over wage increases.
“If we’re right in expecting wage negotiations are going to lead to more signals that inflation is becoming a little bit more persistent in Japan, then we expect BOJ to exit negative interest rate policy,” said Bipan Rai, North American head of FX strategy at CIBC Capital in Toronto.
However, “I feel like it is priced in already”, Rai added. “Beyond there, we’re really looking at what sort of tweaking they do to the yield curve control programme.”
Big firms will settle negotiations on next year’s pay with unions on Mar 13, ahead of the BOJ policy meeting on Mar 18 to 19.
The US dollar was last up 0.09 per cent at 150.10 yen.
Sterling rose 0.26 per cent to $1.2655.
Bank of England chief economist Huw Pill said on Friday he thought the time for a first interest rate cut by the central bank since the coronavirus pandemic remained “some way off”.
In cryptocurrencies, Bitcoin held just below a more than two-year high reached on Wednesday. It was last up 1.4 per cent at US$62,320, after reaching US$63,933 on Wednesday, which was the highest since November 2021. REUTERS
