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The Dollar Fell Wednesday. What About the E.M. Currencies?

The U.S. dollar declined against the euro on Wednesday. The traders focused on the Federal Reserve’s decision about interest rates policy. The agency’s meeting is today. Some market participants hope that the Fed will announce the end of its tightening cycle.

The dollar index plummeted by 0.2% to 101.91 on Wednesday. It also traded in the red in the previous session. A new report showed that U.S. labor costs increased in Q4 at their slowest pace in a year. After that news, the greenback struggled to maintain its gains. The index shaved off much after hitting the 20-year high of 114.78 on September 28. It has decreased for four consecutive months.

The Federal Reserve hiked interest rates several times in 2022 to hinder soaring inflation. Now traders expect the agency to deliver the smallest raise in the last ten months. However, market participants argue about what course the Fed will take in the coming months. Both the U.S. economy and inflation are currently losing momentum. Thus, it’s possible that the Fed stopped raising rates to give the economy a chance to recover.

According to Michael Hewson, the chief market analyst at CMC Markets U.K., several Fed officials declared that interest rates would remain high in the coming months. However, markets don’t believe that. Several key inflation indicators showed that prices are dropping, maintaining a steady trajectory.

How is the Euro trading? 

The common currency remained mostly the same today. The new data showed that inflation in the eurozone had lowered for a third consecutive month in January. However, this news has almost no influence on the currency’s moves. The euro surged forward by 0.3% at $1.0893 on Wednesday.

The ECB and Bank of England meetings are due on Thursday. Investors expect central banks to hike interest rates by 50 basis points tomorrow. However, inflation data likely won’t affect the ECB’s decision.

Simon Harvey, the head of F.X. analysis at Monex Europe, noted that even though inflation data is already available, the European Central bank likely won’t change its course so quickly. Thus, traders’ hopes are unrealistic in this regard.

The British Pound remained flat at $1.2320 today. According to reports, the European Union and the United Kingdom have struck a post-Brexit Northern Ireland customs deal. But this news didn’t help the sterling much.

Economists are waiting for ISM manufacturing and job opening data. It is due today. This data might offer hints about the state of the U.S. labor market and economy.

How are the E.M. currencies faring? 

Most EM currencies moved in tight ranges on Wednesday. The shares rallied across Asia, though. The Philippine peso jumped by 0.3% today. It gained the most among regional currencies. On the other hand, Indonesia’s rupiah and South Korea’s won remained flat. The Singapore dollar also traded in the same range.

Tina Teng, the markets analyst at CMC Markets, noted that investors want to know when the Federal Reserve will start the rate cut cycle. They also hope to determine whether the central bank will change its current policy guidance. She also added that the agency probably wouldn’t change its course in the short term. However, it might become less hawkish if inflation continues to lower. There is also a shrinking economy to consider.

On Wednesday, India’s rupee climbed by 0.1%. At the same time, equities soared by 0.6%. The country’s government released the Union budget for the 2023/24 financial year. The authorities want to increase capital expenditure. It will try to create more jobs ahead of a general election.

New reports showed that Indonesia’s January inflation lowered, but it is still higher than the central bank’s target. The country’s central bank hinted that it might end its tightening cycle earlier last month. The bank hopes to reduce headline inflation to within its target range in 2023.

Brian Tan, the senior regional economist at Barclays, stated that CPI inflation data surprised markets. The bank likely won’t hike rates aggressively in the coming months.

The tourism sector flourished as well, while domestic consumption increased. That might support Thailand’s economy. Analysts anticipate a 4% growth this year.

The baht declined by 0.3% today. However, Thai stocks jumped by 0.6%. Seoul shares gained 0.8%. Furthermore, Indonesia’s benchmark index climbed by 0.5%.



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