As worries about the deteriorating prospects for the world economy mount, the dollar saw its second-steepest weekly loss against other major currencies this year on Friday. The yen also dramatically rose, and the dollar fell below 150 yen. Tuesday and Wednesday’s lower-than-expected U.S. inflation statistics accelerated market expectations for the timing of the Federal Reserve’s …
As worries about the deteriorating prospects for the world economy mount, the dollar saw its second-steepest weekly loss against other major currencies this year on Friday. The yen also dramatically rose, and the dollar fell below 150 yen. Tuesday and Wednesday’s lower-than-expected U.S. inflation statistics accelerated market expectations for the timing of the Federal Reserve’s rate reduction. This may happen as early as the first quarter of the following year and would undermine a key pillar of the dollar. The yield on benchmark 10-year Treasury notes dropped to a two-month low of 4.379%, while the dollar index—which compares the US dollar to six other major currencies—fell to lows last seen on September 1. The dollar was briefly bolstered by data showing a little increase in single-family homebuilding in the United States in October, but the primary mover of the market was inflation, and it ended the day weaker. With the dollar index down 0.49% for the day and a low of 103.85, the greenback has dropped 1.8% over the last five days, marking the largest weekly decrease since mid-July. Eurostat statistics revealed that year-over-year inflation in the euro zone dropped substantially in October, which caused the euro to rise 0.52% to $1.0906. The yen, which has been severely hurt this year by the strength of the dollar, broke through the 150 barrier for the first time in almost two weeks, rising 0.69% to 149.68 to the dollar. Compared to the Japanese yen, the US dollar has decreased by almost 1.4% since Monday. When determining when to engage in the currency market, Japanese authorities do not consider particular exchange-rate levels, Ryosei Akazawa, the deputy minister of finance, informed parliament on Friday.
According to Lee Hardman, a currency analyst at MUFG, the strength of the yen was due to “contracting growth concerns are rising” globally, and the decline in energy costs had less of an effect on Japanese terms of trade. A string of dismal readings this week was compounded by weaker-than-expected retail sales data in Britain; however, sterling edged up to $1.2458, up 0.42% for the day. Globally weak data has sparked worries about the outlook for the economy, but it also implies that central banks may be succeeding in their battle against rising costs. The dollar has been weakening as a result of market forecasts that the Fed will decrease its overnight lending rate by 93 basis points (bps) by December 2024. Next year’s 100 basis point rate cuts in the euro zone have likewise been almost fully priced by the money markets. However, policymakers at the European Central Bank (ECB), Robert Holzmann and Joachim Nagel, stated on Friday that the EU must be prepared to hike interest rates once more if needed. The European Union requires a capital markets union, according to ECB President Christine Lagarde, who also stated earlier in the day that neither banks nor highly indebted governments can raise the necessary funds to increase the EU’s productivity and independence.
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