The moves follow weeks of unrelenting data showing inflation in the US running hotter than economists had expected, putting pressure on the Federal Reserve to redouble efforts to tamp down growth by raising interest rates. (Representative image)
The U.S. dollar slid from a 2-1/2-month high versus the Japanese yen on Friday, on track for its largest weekly loss since mid-January against a basket of six major currencies, as traders stepped back to gauge the path for Federal Reserve policy.
Analysts said the market has for the most part priced in the prospect of a higher terminal fed funds rate after the recent run of upbeat U.S. economic data.
The yen, which is sensitive to U.S.-Japan long-term rate differentials, looked set to halt its six-week losing streak against the dollar, as it gained strength with 10-year U.S. yields retreating from a nearly four-month high close to 4.1%.
Cryptocurrencies, on the other hand, took a beating as the crisis surrounding Silvergate Bank worsened, with industry heavyweights such as Coinbase Global and Galaxy Digital dropping the lender as their banking partner.
The dollar index, which measures the greenback’s value against six major currencies, fell 0.3% to 104.60, from as high as 105.36 at the start of the week, its strongest level since Jan. 6. So far this week, the index has slid 0.5%, on pace for its biggest percentage fall since the week of Jan. 15.
The greenback briefly pared losses after data showed the U.S. services sector grew at a steady pace in February, with new orders and employment rising to more than one-year highs. The Institute for Supply Management’s (ISM) non-manufacturing index dipped to 55.1 from 55.2 in January.
“The dollar has essentially enjoyed four full weeks of gains that completely erased the losses in January,” said Juan Perez, director of trading at Monex USA in Washington.
“As markets look to end a tough Q1, there is optimism growing as the focus shifts from the pains associated with inflationary pressures and to the potential for a prosperous second half of the year despite central bank tightening via interest rates.”
Analysts polled by Reuters said recent dollar strength was likely to be temporary, and the currency will weaken over the course of the year as the global economy improves and on expectations the Fed will stop hiking interest rates well ahead of the European Central Bank.
However, the dollar seems unlikely to reverse its latest uptrend, said Karl Schamotta, chief market strategist at Corpay in Toronto.
“Next week’s job opening and non-farm payrolls reports could generate a lift in yields and the dollar. Traders are likely to move cautiously, particularly in currencies exposed to more dovish local central bank messaging – namely the Aussie, Canadian dollar, and yen.”
The Bank of Japan (BOJ), meanwhile, is expected to start dismantling extraordinary stimulus measures after Governor Haruhiko Kuroda retires next month.
Tokyo inflation data for February exceeded the BOJ’s target for a ninth month, but the core measure did decelerate from a 42-year high.
The dollar eased 0.4% to 136.26 yen, after climbing to 137.10 on Thursday, the highest since Dec. 20. For the week, the dollar was down 0.4% versus the yen, its worst weekly showing since mid-January.
The euro rose 0.3% to $ 1.0628, after starting the week at a nearly two-month low of $ 1.0533.
Sterling rose 0.7% against the dollar to $ 1.2032, on track for a 0.4% gain on the week, its best weekly performance since Jan. 20. The pound’s gains came as Britain struck a post-Brexit Northern Ireland trade deal with the European Union, while a survey showed Britain’s services sector grew at the fastest pace in eight months in February.
Bitcoin slid 4.9% to $ 22,306, after touching a 2-1/2-week low at $ 22,000. Ether declined dropped 5.4% to $ 1,559 after touching $ 1,543.60, the lowest since mid-February.
