US dollar cuts losses as Powell signals bond cut

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The US dollar cut losses on Friday after US Federal Reserve Chairman Jerome Powell said the US central bank is expected to start cutting asset purchases soon, but is not yet expected to raise interest rates .

Powell said employment was still too low and high inflation would likely decline next year as pressures from the COVID-19 pandemic ease, although many market participants fear the rise. price pressure lasts longer than policymakers realize.

Investors have been taking profits since the U.S. dollar index hit a year-long high last week, when fears that inflation would stay stubbornly high longer led them to anticipate when the Fed would raise its prices. rate for the first time in the middle of next year.

Now, “there’s a bit of loosening in positioning, we’ve obviously seen a stronger dollar since the Fed in September,” said Mazen Issa, senior currency strategist at TD Securities in New York. “It also matches the dollar’s seasonal tendency to ease through the end of the month.”

The Fed said at its meeting last month that it would likely start cutting its monthly bond purchases as early as next month, and signaled that interest rate hikes could follow faster than expected.

The US dollar index fell 0.2% on Friday to 93.61, and is down from a one-year high of 94.56 last week. The index is down 0.4% for the week.

In Taipei, the new Taiwan dollar appreciated against the greenback on Friday, gaining NT $ 0.010 to close at NT $ 27.902, up 0.4% for the week.

The euro gained 0.09% on Friday against the US dollar at US $ 1.1636.

Data from Friday showed that business activity in the United States rose sharply this month, suggesting that economic growth picked up at the start of the fourth quarter as COVID-19 infections eased, although that labor and raw material shortages have hampered manufacturing.

The rally in the US dollar has also faded as investors expect faster rate hikes in other currencies.

However, Issa expects the US dollar to gain ground as global central banks push back aggressive rate hike reviews, while the Fed is expected to remain relatively hawkish and move forward with a reduction in its program. purchase of bonds.

“Once we get the pullback from other central banks and the Fed has made a commitment to gradually cut back, we should see really shallow dollar declines,” Issa said.

The Australian dollar, which is a proxy for risk appetite, dropped its earlier gains and lost 0.05% to US $ 0.7462.

The yen, a safe haven, appreciated, although it remains the worst performing, having fallen by nearly 10% this year. The US dollar lost 0.5% against the Japanese currency at 113.42.

CNA Supplementary Reports, with Editor-in-Chief

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