FOREX-dollar extends decline, still vulnerable after Fed

(Update at 1221 GMT)

Author: Samuel Indyk

LONDON, Nov 6 (Reuters) – The U.S. dollar extended its slide on Monday, falling the most since July last week after the Federal Reserve toned down its hawkish rhetoric and U.S. data showed signs of moderation.

The dollar index was hovering around a 6-1/2 week low of 104.84 after falling 1.4% last week.

The euro gained 0.2% to a 7-1/2-week high of $1.0756.

Global stocks also had their strongest week in a year last week as expectations that the Fed will raise rates gathered steam.

Other indicators such as weakness in US jobs data, weaker manufacturing numbers and a drop in longer-dated government bond yields are also hurting the greenback, while boosting the pound and Australian dollar, leaving it only to bounce back from the downside of 150 to the dollar. .

“We always say bad news (weak economic data) is good news,” said Tina Teng, market analyst at CMC Markets in Auckland. “So it’s good that the Fed and other central banks are expected to end the rate hike cycle early.”

She expected the dollar to remain in a weaker trend until November.

Dane Cekov, chief FX strategist at Nordea, called last week’s moves an “overreaction” and said the jobs data was “mixed.”

“In the short term, you may still see a somewhat weaker dollar, but if the (eurodollar) continues to grow, it will need to get some fuel from somewhere.”

Analysts at JPMorgan say a sustained dollar selloff would require signs of improvement in the eurozone, China and other regions it says are “remaining weak.”

This is confirmed by the latest data on growth and inflation from the Eurozone and manufacturing surveys from China.

Eurozone recession fears worsened on Monday after a survey showed a decline in business activity accelerated last month as demand in the services sector weakened further.

“The final PMIs released today … are in line with our forecast that eurozone GDP will contract again in the fourth quarter,” Capital Economics Europe economist Adrian Prettejohn said.

“They also indicate that price pressures continue to ease.”

Futures markets indicate about an 80% chance that the European Central Bank will cut rates by April and about a 90% chance that the Fed will hike, with an 86% chance that the Fed’s first policy easing will come as early as June.

Fed Chairman Jerome Powell, speaking of balanced economic risks, sent Treasury yields lower last week, with further declines following softer US data.

The US government also cut its refinancing estimate for the quarter and reported lower-than-expected increases in long-term debt auctions.

2-year yields fell 25 basis points in about two weeks, while 10-year yields fell near a five-week low and were last at 4.593%. The front end of the curve remains deeply inverted.

The Japanese yen fell 0.2% to 149.62.5 per dollar. Nordea’s Cekov said the Japanese yen would likely need to hover around 155 to the dollar for them to consider intervention or talk the currency up.

It hit 151.74 per dollar just last week, nearing the October 2022 low, prompting several rounds of selling interventions by the Bank of Japan.

Sterling rose 0.4% to $1.2425. UK third-quarter GDP data is due this week, and while the pound rallied strongly last week in a heavily shorted market, it’s still about 5.5% lower since July’s peak.

In terms of cryptocurrencies, Bitcoin went up to $35,179. The risk asset has recently been boosted by the expected end of central bank policy tightening cycles and the prospect of new spot bitcoin exchange-traded funds being approved.

(Reporting by Samuel Indyk, Rae Wee and Vidya Ranganathan Editing by Kirsten Donovan and Mark Potter)

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