The Aussie Pair Is Trading Above 0.69$, The Euro Above 1.07, The British Pound Also Benefits From A Weak Dollar
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The US dollar on Monday approached a seven-month low against other major currencies after data suggested the Federal Reserve could slow the pace of rate hikes. The dollar suffered its biggest quarterly loss in 12 years in the last three months of 2022, driven mainly by investor confidence that the Fed would not raise interest rates above 5%.
The probability of a 25 basis point Fed rate hike in early February rose above 70% after the release of this data, reflecting the return of dovish Fed betting.
The US economic report will not contain any important macro data on Monday. Later in the day, Atlanta Federal Reserve Bank Chairman Raphael Bostic will give a speech, and he said on Friday that he expects the Fed to keep interest rates at peak levels until 2024.
Friday's monthly employment report showed an increase in non-farm payrolls and a slowdown in wage growth. The US employment data hit the US dollar hard.
USD/JPY
The Japanese yen strengthened above 132 to the dollar, returning to its highest level in seven months.
The yen is building on December gains amid mounting speculation that the Bank of Japan may soon move away from ultra-easy policy after it unexpectedly raised the upper end of its 10-year government bond tolerance band to 0.5% from 0.25% last month .
However, BJ Governor Haruhiko Kuroda clarified that the move was not a sign of starting a massive stimulus exit, but was intended to improve the functionality of the bond market.
AUD/USD
The AUD/USD pair builds on Friday's strong rally and gains strong traction on the first day of the new week. This marks the second day in a row of positive movement.
The Aussie pair broke through the 0.69 level in the Zajati session.
China's hopes of reopening may have contributed to the strengthening of the commodity currency. The world's second largest economy has lifted quarantine requirements for visitors, taking another step towards reconnecting to the world in the post-Covid era.
Over the weekend, China finally reopened its sea and land border crossings with Hong Kong, the last pillar of its zero-covid policy, after three years.
On the monetary policy front, the currency remains supported by expectations that the Reserve Bank of Australia will raise interest rates further this year in an ongoing effort to bring down inflation.
Otherhand, markets are currently split on whether the RBA will deliver another rate increase at its Feb.
GBP/USD
The British pound hit a two-and-a-half-week high on Monday against a fundamentally weak dollar.
GBP/USD entered a consolidation phase and pulled back towards 1.2100 after hitting a two-week high at 1.2175 earlier in the day. The US dollar came under strong selling pressure before the weekend.
Traders are fully pricing in a 25bps rate hike at the February BoE meeting with around a 65% chance of a larger 50bps hike. The money markets predict that the bank rate will peak at around 4.5% in the middle of this year.
EUR/USD
EUR/USD is on a strong gain for the second day in a row.
After Friday's rally before the weekly close, EUR/USD rose to 1.0699 on Monday. The euro benefited from better market sentiment. Today the EUR/USD pair climbed towards 1.0700.
Unemployment in the EU shows a downward trend and November's print jobs reached 6.5% . Lower gas prices are also contributing to optimism in the eurozone and a better economic outlook for the eurozone, but the main driver of the euro appears to be a sell-off of the dollar along with flows into risky assets.
Source: investing.com, finance.yahoo.com, dailyfx.com
