(Update price levels)
By Vidya Ranganathan
SINGAPORE, Nov 6 (Reuters) – Major global currencies were steady on Monday morning as investors braced for the U.S. dollar to extend losses from late last week after the Federal Reserve muted its hawkish rhetoric.
The dollar index stagnated at 105.07 and the euro at 1.0727 dollars. The dollar index fell more than 1% last week, its heaviest fall since mid-July, and hit a six-week low.
Global stocks also had their strongest week in a year as expectations that the Fed will raise rates gathered steam.
Other indicators such as weakness in US jobs data, weaker manufacturing figures from around the world and a fall in longer-dated government bond yields are also hurting the dollar, while fueling a rally in the pound, the Australian dollar and causing it to just bounce back from the weaker side of 150 for a dollar.
“We always say bad news 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.
Analysts at JPMorgan Securities, however, sounded a note of caution.
“Dollar bears would do well to temper their enthusiasm,” they wrote. “This is because the pillars of USD strength have weakened but not completely faded and are likely to re-emerge as factors supporting the USD in the medium term.”
Moreover, in addition to further evidence of a slowing U.S. economy, JPMorgan analysts say a sustained dollar selloff needs signs of improvement in the eurozone, China and other regions it says are “remaining weak.”
This is confirmed by the latest manufacturing surveys from China and Europe on GDP and inflation.
Treasury yields fell last week after weaker U.S. jobs and manufacturing data and after Fed Chairman Jerome Powell spoke of “balanced” risks. 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 half a percentage point to 5-week lows of around 4.59%. The front end of the curve remains deeply inverted.
Futures markets swung, suggesting a 90% chance the Fed hiked and an 86% chance the first policy easing would come as early as June.
Markets also indicate around an 80% chance that the European Central Bank will cut rates by April, while the Bank of England is easing in August.
The Japanese yen weakened 0.15% to 149.58 per dollar. CMC Markets’ Teng said the reversal in the direction of the dollar and the yen’s recovery from last week’s lows indicated that Japanese authorities may not need to intervene in the currency.
It hit 151.74 per dollar just last week, nearing the lows of last October, prompting several rounds of dollar interventions by the Bank of Japan.
Sterling last traded at $1.2368. Britain’s fourth-quarter GDP data is due this week, and while the pound rallied strongly last week in a market heavily short the currency, it is still about 6% lower in four months.
A drop in the dollar and yields helped support gold to $1,990, within striking distance of a recent five-month high of $2,009.
In cryptocurrencies, Bitcoin was steady at $34,965. The risky asset was supported by the expected end of central bank policy tightening cycles.
The crypto industry also focused on the prospect of new spot bitcoin exchange-traded funds (ETFs) that would open up the market to more investors. Although none has been approved, several companies have applied for such a product.
(Editing by Shri Navaratnam & Simon Cameron-Moore)