FOREX-Dollar Extends Losses, Euro Recovers As Traders Reassess Bets On Rate Hike

DDollar down to two-month low after Wednesday’s CPI data

Euro heading towards $ 1.15, strongest since November

Sterling extends rally, ignores political uncertainty

LONDON, January 13 (Reuters)The dollar fell further to its two-month low on Thursday after US inflation turned lower than expected in December, prompting investors to cut overcrowded long positions in the currency.

The euro was a big beneficiary of the move and extended its rise to $ 1.1479 EUR = EBS, up 0.3% on the day, while the pound sterling and the yen JPY = EBS also added to their earnings.

Monthly US inflation figures for December released on Wednesday were slightly higher than expected and the increase in year-on-year consumer price inflation was as expected at 7% – its biggest jump since June 1982 .

Still, traders don’t view these inflation readings as an urgent change from an already hawkish Federal Reserve. With at least three rate hikes already on-market, some investors have reduced bets on further dollar gains.

The U.S. index, which measures the greenback against a basket of rival currencies, fell further 0.2% to 94.782 = USD.

“The extent of the dollar’s sell-off must surely be partly indicative of positioning,” MUFG analyst Derek Halpenny wrote in a research note.

Halpenny said such a Fed tightening was now expected next year, expectations for longer-term rate hikes were relatively low, keeping the dollar under control.

“Investors seem to be reporting that the end of QE (quantitative easing), the four-fold rate hike and the start of QT (quantitative tightening) within (9 months) are so aggressive that it will limit the possibilities for hikes to longer term. has actually reinforced the belief that the peak in federal funds will be less than 2%, ”he wrote.

Elsewhere, the pound, which has rallied as traders believe the UK economy can survive a spike in COVID-19 cases and the Bank of England to start hikes as early as next month, has risen 0.2% to $ 1.3738 GBP = D3.

The currency is up more than 4% from December lows and traders have so far ignored a political crisis enveloping Prime Minister Boris Johnson who apologized for attending a party in Downing Garden Street during a coronavirus lockdown.

New Zealand central bank has already started raising rates and the New Zealand dollar NZD = D3 rallied at $ 0.6876, a gain of 0.4% during the session and its strongest since late November.

The Australian dollar, which tends to do well when general market sentiment improves, added 0.3% to $ 0.7305 AUD = D3.

The canadian dollar CAD = D3 rose more than 3.5% in three weeks, gaining with oil prices as investors look past the potential economic fallout from the Omicron variant.

“The dollar doesn’t need to rise as the Fed is preparing for a tightening cycle,” said Joe Capurso, Commonwealth Bank of Australia strategist.

“This is not a simple equation of Fed hikes equal to dollar increases. The dollar is a countercyclical currency that shrinks as the global economy recovers.”

Global exchange rates

(Reporting by Tommy Wilkes Additional reporting by Tom Westbrook in Sydney Editing by Raissa Kasolowsky)

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