Dollar rise
Fundamental Analysis

Currency Futures Prices Soften as Dollar Hovers Near One-Week High

  • Investors are awaiting a speech from Fed chair Powell.
  • Weaker-than-expected consumer price data from Germany and Spain kept Euro futures prices down.
  • Australia’s annual increase in CPI for October was 6.9%, down from 7.3% in September.

Currency futures edged lower early Wednesday as the US dollar held steady near a one-week high, holding on to gains from a three-day advance. Investors were waiting to hear what Federal Reserve Chair Jerome Powell had to say today and important monthly job data at the end of the week.

After data from Germany and Spain showed that consumer prices were lower than expected, euro futures stayed close to a one-week low. This led to a reduction in rate hike expectations for the European Central Bank and an increased focus on Eurozone inflation anticipated later on Wednesday.

The Australian dollar futures, which frequently serve as a proxy trade for the outlook for China’s economy, was stable after fending off pressure to decline from lower-than-anticipated local inflation data and worse-than-anticipated Chinese manufacturing surveys.

Australia’s monthly CPI (Source: Australian Bureau of Statistics)
Australia’s monthly CPI (Source: Australian Bureau of Statistics)

In October, Australian inflation decreased, an unexpected development that might indicate interest rates won’t need to climb as much as some had anticipated. The annual increase in the CPI for October was 6.9%, down from 7.3% in September.

The US dollar index, which compares the dollar’s value to those of the Euro and five other rival currencies, fell 0.13% to 106.72 after rising to 106.9 for the first time since November 23 in early Asian trading.

Since the middle of the month, the index has fallen twice to about 105.3 amid bets that the Fed will halt its rapid rate increases after inflation showed hints that it might be nearing a peak.

Traders have placed 63.5% odds on the Fed slowing rate increases to a half-point increase on December 14 and 36.5% odds on another 75 basis point increase.

Recent Fed speakers have all quashed expectations of a shift. St. Louis Fed President James Bullard stated there is still “a ways to go” for policy tightening, and New York Fed President John Williams said the central bank has to go forward with rate increases.

“We expect Powell to talk up the need for tighter financial conditions, which may cause market participants to reassess the global economic outlook and further push the USD up,” Carol Kong, a strategist at Commonwealth Bank of Australia, wrote in a client note.