The US dollar tumbled on Tuesday after gaining in the previous session. The coin looks set for a fourth straight monthly loss. Investors await the Federal Reserve’s decision on interest rate policy. The agency’s meeting is scheduled for this week, along with the European central bank and the Bank of England. The three main banks will announce their new adjustment plans before Friday. The dollar rallied yesterday due to the cautious mood in the market ahead of these meetings. However, that was not enough to support the dollar today.
In January, the US dollar index plunged 1.3%. It changed hands at 102.28 today. On the other hand, the euro rose 1.3% this month. It is currently trading near its nine-month high. The common currency shot up to $1.0913 in the previous session. The new data showed that Spanish inflation reached new highs in 2023. That news supported the currency, as traders took the report as an indicator that the ECB would offer a higher rate hike. However, the euro soon fell to $1.0845, closing the session lower on Monday. Sterling was also trading in the red. Despite that, the British pound looks poised for monthly gains.
Investors are focusing on US Atlantic employment cost data. The Fed often relies on the labor market to determine monetary policy. Thus, market participants will look for clues to learn about the agency’s possible plans.
Chris Weston, head of research at broker Pepperstone in Melbourne, said if the Federal Reserve hints it might not go through with another hike this week, riskier assets could rise. That will also cause the dollar to sell off.
The Australian dollar declined. What about the New Zealand dollar?
The Australian and New Zealand dollars fell on Tuesday. However, they are likely to end this month with a profit. The same is true for the Canadian currency. The New Zealand dollar changed hands at $0.6474. The kiwi soared more than 1.5% over the month.
Overall, the Australian dollar is down 0.7% today. It traded at $0.7036 at last. However, the coin gained roughly 3.2% in January. The Australian government warned against consumption today. News reports show that retail sales experienced their biggest decline last month in more than two years. That means the rate hikes are hitting the economy.
Meanwhile, the Japanese yen fell 0.4% on Tuesday. However, the currency managed to stabilize later in Asia. It traded at 130.26 at last. The yen will also close this month with gains.
Also, Tony Sycamore, an analyst at brokerage IG Markets in Sydney, noted that currencies appear to be moving toward the end of their rally against the dollar. The buying of dollars and the cautious mood of the operators also weigh on them. According to surveys, investors expect the Fed to announce a 25 basis point (bp) rate hike, along with two more hikes in the coming months.
What about emerging market currencies?
On Tuesday, most emerging Asian currencies and stocks were in the red. Philippine stocks suffered the most. They plunged 3.3%, experiencing their biggest drop since December 2022. The Indonesian rupiah was also down 0.1% today. The coin traded near its lowest level since September 2022. However, it soared nearly 4% in January, ending the month with gains. On the other hand, the Malaysian ringgit fell 0.1%.
The Chinese yuan also fell 0.1% despite the country’s manufacturing data showing its economy recovering. China’s economic activity reportedly picked up in January. After the government loosened its strict coronavirus rules, the economy continues to grow strongly.
Also, factory output in Thailand plunged more than analysts had expected last month. It appears that a global economic downturn weighed on demand for Thai exports. The latter decreased significantly. Consequently, Bangkok shares were down 0.3% today. At the same time, the baht fell 0.1%.
On Tuesday, the South Korean won also fell as much as 0.3%. Shares in Seoul also ended down 1%. In December, the country’s industrial production fell more sharply than economists had predicted. In addition, the Indian rupee fell 0.3% and shares fell 0.4%.
Chidu Narayanan, Asia markets and rates strategist at BNP Paribas, noted that most emerging Asian currencies appear to be consolidating at the moment. They are following the substantial gains acquired this month.
