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The U.S. dollar dropped on Monday. What about the yen?

The dollar tumbled on Monday after hitting a seven-week peak in the previous session. On Friday, new data showed U.S. consumer spending surged forward in January. However, inflation also accelerated. That means the Federal Reserve might decide to continue with its aggressive monetary policy. Further interest rate hikes with hinder inflation, and as the economy remain resilient, there’s less chance of tightening to send the latter into recession.  

Investors bet the agency to hike rates to approximately 5.4% by the summer. At the beginning of this month, they forecast rates hitting a peak of just 4.9%, though. On Monday, the U.S. dollar index was relatively subdued against the basket of six major peers. However, it skyrocketed by nearly 3% in February. The index seems set to break a four-month losing streak.

On Monday, the euro plummeted to its lowest level against the greenback since January 6. But it recovered some of its losses, later, exchanging hands higher by 0.16% to $1.056. Meanwhile, the dollar index declined by 0.1% to 105.05 at last. It jumped to a seven-week high of 105.36 on Friday.

Investor sentiment improved slightly on Monday. Global stocks are rallying, though, and that might be weighing on the USD, – noted Simon Harvey, the head of FX strategy at Monex Europe. He also added that after enjoying a strong month, there might be month-end flows out of the greenback.

The U.S. currency shaved off 0.22% versus the Japanese yen. It traded at 136.21 yen at last. The dollar lost some of its gains from the previous session when it hit a more than two-month peak of 136.58.

How is the sterling faring?

The British pound climbed up by 0.31% at $1.198 today. The currency had traded in the red for three consecutive sessions before rebounding, though. Analysts think that the sterling profited from a potential deal with the EU that might resolve post-Brexit tensions.

However, core inflation remains high in the country. Ulrich Leuchtmann, the head of FX research at Commerzbank, noted that central bankers are worried about that. According to him, the trend of surging core inflation rates has been unbroken, even though headline rates are dropping.

On Friday, the core measure of U.S. personal consumption expenditures inflation, showed that the index hit 4.7% year-on-year in January. That is a bit higher compared to 4.6% in December. At the same time, data about core consumer price inflation in the euro area showed that it jumped to a record high of 5.3% year-on-year last month.

Traders are now waiting for more data to determine the state of the global economy. United States ISM manufacturing and services survey data for this month is due on Wednesday and Friday, respectively. Moreover, preliminary euro-area CPI inflation figures for February will come out on Thursday.

What about the Asian currencies?

The greenback dropped by 0.17% versus the offshore Chinese yuan today. The latter exchanged hands at 6.97 per USD at last. Meantime, the Aussie dollar tumbled by 0.15% to $0.672. The Australian currency plunged below $0.67 earlier in the session, hitting its lowest level since the start of January.

Furthermore, EM Asian currencies and stocks traded in the red today. The Philippine peso suffered the most. It declined by 1.3% versus the dollar, plunging to its lowest since January 6.

On Monday, the Malaysian ringgit fell by as much as 1%, also hitting its lowest since November 30. Philippine stocks also shaved off 1.5% today, with Singapore shares dropping by 0.4%. On the other hand, South Korean shares and the won decreased by 0.9% and 1.4%, respectively.

Indonesia’s rupiah also struggled today. It plunged by 0.4% to the USD, hitting its lowest point since mid-January. At the same time, the Thai baht declined by 0.5%.

Jeff Ng, the senior currency analyst at MUFG Bank, stated that traders are looking out for more interesting data, including Asia and China PMI, later this week. Until then, forex movements will be driven more by the dollar side than the local currency side.

On Monday, Malaysia’s prime minister announced that the fiscal deficit target would be 5%. That’s more ambitious than his predecessor’s target of 5.5%. However, the government aims to reach it by cutting down on spending, as well as taxing luxury goods and capital gains.



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