The euro maintained its overnight gains as statistics suggested that the euro zone’s recession may be abating, while the dollar remained constrained on Friday due to uncertainties about the direction of US interest rates.
Due to the fact that U.S. markets are closed on Thursday and that trading will be shortened on Friday in observance of Thanksgiving, currencies are likely to move narrowly but volatilely as little liquidity is predicted.
The dollar index, which compares the value of the US dollar to six other currencies, decreased by 0.029% to 103.73, remaining around the two-and-a-half month low of 103.17 that it had previously struck this week.
Due to growing anticipation that the Federal Reserve may start lowering interest rates next year and is finished hiking rates, the index is down 2.8% for the month and is headed for its worst monthly performance in a year.
According to CME Group’s FedWatch tool, futures currently indicate a 26% likelihood that the Fed would lower its target rate at the March 2024 policy meeting, reflecting the fact that markets have reduced their expectations of a rate drop in 2024. In contrast, last week’s likelihood was 33%.
The euro was up 0.16% overnight to $1.0904 after a number of early polls suggested that Germany’s recession may be milder than anticipated. This helped to counteract a negative reading of economic activity in France.
In the meanwhile, October saw a modest increase in Japan’s core consumer price increases, which had eased the previous month. This strengthened investors’ belief that the Bank of Japan (BOJ) would soon be forced to reduce monetary assistance due to persistent inflation.
Economists at ING predicted that the BOJ will abandon its extremely accommodating policy in 2019.
“We believe that the BOJ may scrap the yield curve programme as early as the first quarter of next, as Japanese government bonds appear to have stabilised… then begin its first rate hike in Q2 2024 if wage growth continues to accelerate next year.”
The value of the Japanese yen rose 0.04% to $149.49. The Asian currency is up 1.5% for the month and has gradually recovered from the almost 33-year low of 151.92 it set at the beginning of last week.
A business survey released on Friday revealed that Japan’s industrial production contracted in November for the sixth consecutive month, while the service sector had minor increase. These figures underscore the fragility of the economy in the face of inflation and tepid demand.