Dollar Moves Down As Traders Look At Central Banks For Cues

On Wednesday, the dollar fell against the euro, as trading remained subdued with investors not ready to make any big bets ahead of the meetings of central banks scheduled for the next week.

This includes the European Central Bank (ECB) and the Federal Reserve. Moreover, most of Asia is also busy with the Lunar New Year holidays.

Therefore, most of the major currencies were clinging to their familiar ranges.

Expectations

Market analysts said that trading ranges were quite compressed because of the central bank meetings scheduled in the next week.

Traders are expecting an interest rate hike of 25 basis points by the US Federal Reserve in its meeting next Wednesday, which would be a step down from its hike in December of 50 basis points.

Meanwhile, the ECB has almost committed to hiking its interest rate aby almost 50 basis points in the next week.

Analysts said that the landscape had become more nuanced because inflation had begun to subside, global demand conditions were stable and expectations of rates were below their peaks.

Trading conditions remained sluggish on Wednesday in light of a lack of any big releases of US data.

The analysis

Nonetheless, there was a possibility that market movements would rise later in the week, as the initial advance estimates for the gross domestic product (GDP) for the fourth quarter were due on Thursday by the US Commerce Department.

Analysts said that there could be surprises in the personal consumption and gross domestic product numbers that are due on Thursday.

They said that the post-pandemic era had shown that ‘bullwhip effects’ could result in unpredictable outcomes for the real economy.

There was a 0.06% increase in the euro, as it rose to $1.0895, which brought it close to the high of nine months it had hit on Monday at $1.0927.

The data

On Tuesday, data showed that there had been modest growth in business activity in the euro zone in January.

The euro also saw a boost due to expectations that the European Central Bank (ECB) will deliver another rate hike in its upcoming meeting.

Ifo Institute survey released data on Wednesday showing that business morale in Germany had seen a boost in January, as there was a decline in inflation and the outlook improved.

In contrast, data had shown on Tuesday that there was a contraction in business activity in the US in January for the seventh month in a row.

However, the downturn had been moderate in the manufacturing sector and services for the first time after September.

There was a 0.45% drop in the US dollar against the Japanese yen, as it came down to 129.575 yen, after reaching a low of 8 months at 127.215.

There was also a rise in the Australian dollar on Wednesday to a high of more than five months after inflation numbers turned out to be higher than expected.

This strengthened the case for further increases in the interest rate by the Reserve Bank of Australia. There was a 0.28% rise in the Australian dollar to $0.7065.