Hawkish commentary from Fed officials including by Chair Jerome Powell helped the U.S. Dollar rebound against major currencies during the week spanning November 6 to 10. The Dollar gained comfortably against the euro, the British Pound, the Australian Dollar as well as the Japanese Yen after a week of decline triggered by softer-than-expected jobs data.
The Dollar Index, a measure of the Dollar’s strength against a basket of 6 currencies added 0.80 percent during the week ended November 10 as aggressive monetary policy commentary by Fed speakers forced markets to scale back rate cut expectations. The Dollar’s climb was steady over the course of the week, with the Dollar Index rising from a low of 104.85 touched on Monday to a high of 106.01 on Friday. The index however closed a tad lower at 105.86, versus 105.02 a week earlier.
The Dollar’s rebound was primarily driven by hawkish Fed commentary over the week. Recent Fed speakers tried hard to hint that it was not yet time to confirm an end to the Fed’s monetary tightening cycle and that inflation combat was still beset with challenges. Chair Jerome Powell on Thursday stated that the Fed was not confident that it had done enough to bring inflation down. He also warned that the Fed would not hesitate to raise interest rates if it became appropriate to tighten policy.
U.S. ten-year bond yields increased to 4.646 percent from 4.576 percent a week earlier, reflecting the market’s anxiety on interest rates remaining higher for longer than anticipated, expediting the Dollar’s surge.
The euro slipped close to half a percent against the U.S. dollar during the week spanning November 6-10, causing EUR/USD to close the week’s trading at 1.0681, versus the level of 1.0729 a week earlier. The pair ranged between the high of 1.0757 traded on Monday and the low of 1.0655 traded on Friday. The euro’s movements come amidst the ECB trying to balance between high borrowing costs and the risks of a painful recession. ECB President Christine Lagarde had on Friday indicated that despite the massive drop in inflation, the ECB would not cut interest rates in the next couple of quarters.
The pound too slipped against the U.S. dollar over the course of the week ended November 10, despite Bank of England Governor Andrew Bailey hinting at no immediate rate cuts. The GBP pair shed 1.24 percent as it plunged to 1.2222, from the level of 1.2376 recorded a week earlier. The weekly trading range for the pair was slightly wider, between a high of 1.243 and a low of 1.2186. Data released on Friday had shown that U.K.’s economic growth in the third quarter was steady at 0.6 percent year-on-year, slightly above forecasts of 0.5 percent. In September, GDP grew by 0.2 percent month-over-month versus 0.1 percent growth in August and forecasts of a flat reading.
The more-than 2-percent weekly drop in the value of the Aussie against the U.S. Dollar came amidst the sharp monetary policy divergence between the two central banks. The Fed which had paused on rate hike in its recent review nevertheless maintained a hawkish posture whereas the Reserve Bank of Australia delivered a 25-basis points hike but tempered it with a dovish commentary regarding the need for additional measures. The AUD/USD pair recorded a weekly decline of 2.3 percent as it tumbled to 0.6364, from 0.6512 a week earlier. The pair’s trading range was between a high of 0.6524 recorded on Monday and the low of 0.6338 recorded on Friday.
The more-than-expected dovishness in recent monetary policy action and commentary from Bank of Japan abetted the yen’s weakness, causing the USD/JPY pair to trade above the psychological 150 level for most part of the week. Bank of Japan persisting with negative interest rates contrasted with the Fed trying hard to push back expectations of rate cuts, adding to the monetary policy divergence. From the low of 149.24 recorded on Monday, the pair climbed to a high of 151.62 by the end of the week. Helped by a weekly gain of 1.43 percent over the course of the week, the USD/JPY pair closed at 151.50, versus 149.37 a week earlier.
Anxiety ahead of the release of the CPI numbers from the U.S. now hold sway over the greenback’s fortunes. The Dollar Index has increased to 105.95 versus 105.86 at Friday’s close. The EUR/USD pair has declined to 1.0671 whereas the GBP/USD pair has increased to 1.2243. The AUD/USD pair is flat at 0.6366. The USD/JPY pair is currently at 151.81 after touching a high of 151.90. The pair had closed on Friday at 151.50.