U.S. Dollar Declines Amid Worries Over Fed Rate Hike Outlook
04 February 2016 - 5:27PM
RTTF2
The U.S. dollar fell against its major opponents in early
European trading on Thursday, amid expectations that the Federal
Reverse might raise interest rates at a slower pace this year, in
the light of slowing growth in the U.S., as well as deteriorating
prospectus over global growth outlook.
In an interview with MNI on Wednesday, Federal Reserve Bank of
New York President William Dudley warned that the deteriorating
outlook about the global growth and additional dollar strength
could have "significant consequences" for the health of the world's
largest economy.
Dudley stated that the Fed would consider persistent tightening
of financial conditions very seriously while pursuing its planned
interest rate hikes.
Weak service sector data released yesterday added to worries
about U.S. economic growth, with expectations for a rate hike in
March almost nil.
Data from the Institute for Supply Management showed that its
non-manufacturing index dropped to 53.5 in January from an upwardly
revised 55.8 in December. Economists had expected the index to inch
up to 55.5.
Investors await jobless claims and factory orders figures, due
later in the day, for fresh clues on the outlook for Fed
policy.
Attention also shift towards Friday's jobs data, which is
forecast to show that nonfarm payrolls may have risen 190,000 in
January, down from December's robust gain of 292,000.
The greenback showed mixed performance in Asian trading. While
the greenback held steady against the franc and the yen, it rose
slightly against the euro and the pound.
In European trading now, the greenback dropped to 1.1184 against
the euro for the first time since October 22, 2015. This marks
almost a 1 percent decline from a high of 1.1070 hit at 2:00 am ET.
Continuation of the greenback's downtrend may take it to a support
around the 1.13 zone.
The European Central Bank President Mario Draghi said that
adopting a wait-and-watch attitude and acting too late on prolonged
low inflation is riskier than taking early measures as the former
approach could erode confidence.
In a lecture delivered at the Bundesbank, Draghi said, "Adopting
a wait-and-see attitude and extending the policy horizon brings
with it risks: namely a lasting de-anchoring of expectations
leading to persistently weaker inflation."
Extending early slide, the greenback weakened to 1.3666 against
the loonie, its lowest since December 11, 2015. The greenback is
poised to test support around the 1.36 region.
The greenback fell to more than 4-week lows of 0.6721 against
the kiwi and 1.4665 against the pound, from its early highs of
1.6641 and 1.4563, respectively. On the downside, the greenback may
challenge support around 0.68 against the kiwi and 1.48 against the
pound.
The greenback edged down to 117.34 against the yen and 1.0008
against the franc, pulling away from its prior highs of 118.24 and
1.0074, respectively. The greenback is seen finding support around
116.00 against the yen and 0.99 against the franc.
Looking ahead, the Bank of England is due to announce its
interest rate decision, inflation report and the minutes of the
meeting at 7:00 am ET. Economists expect the bank to retain
interest rates unchanged at 0.50 percent and asset purchase target
at GBP 375 billion.
At 7:45 am ET, Bank of England Governor Mark Carney, along with
the other MPC members, will hold a press conference on the
Inflation Report in London.
Federal Reserve Bank of Dallas President Robert Kaplan is due to
participate in a discussion of Global Economic Conditions at an
event hosted by the Real Estate Council in Dallas at 8:30 am
ET.
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