The dollar held close to an eight-month low against its peers on Thursday, as a gloomy U.S. corporate earnings season stoked recession fears and as traders stayed on guard ahead of a slew of central bank meetings next week.
The US dollar index , which measures the greenback against a basket of currencies, inched 0.1% higher to 101.65, after falling as low as 101.52 earlier in the session, testing last week’s eight-month trough of 101.51.
Trading was thin, with Australia out for a holiday and some parts of Asia still away for the Lunar New Year.
Downbeat earnings and guidance from U.S. companies and a string of tech sector layoffs have deepened fears of a sharp economic downturn in the United States, leading investors to pare back expectations on how much longer the Federal Reserve will need to aggressively raise interest rates.
“There are now signs the U.S. economy may be slowing in a more meaningful manner,” said economists at Wells Fargo.
“With the Fed no longer leading the charge on interest rate hikes and U.S. economic trends set to worsen, we now believe the U.S. dollar has entered a period of cyclical depreciation against most foreign currencies.”
The Fed’s policy-setting committee will begin a two-day meeting next week, and markets have priced in a 25-basis-point (bps) interest rate hike, a step down from the central bank’s 50 bps and 75 bps increases seen last year.
Ahead of that, the Commerce Department is due to release advance estimates of U.S. fourth-quarter gross domestic product later on Thursday.
Meanwhile, markets expect policymakers at the Bank of England and European Central Bank (ECB), which will also meet next week, to deliver 50 bps rate hikes. The ECB is seen most likely to remain hawkish.
Sterling was little changed at $1.2400, while the euro slipped 0.03% to $1.0911, though remained close to its nine-month high of $1.0927 hit on Monday.
“The euro does draw a lot of attention,” said Jarrod Kerr, chief economist at Kiwibank. The euro zone “had a favourable winter …. The energy crisis that people were expecting hasn’t quite played out yet.”
Elsewhere, the Canadian dollar last traded at 1.3399 per U.S. dollar, after the Bank of Canada on Wednesday raised its key interest rate to 4.5% but became the first major central bank fighting global inflation to say it would likely hold off on further increases for now.
The Aussie rose 0.2% to $0.7117, on greater expectations that the Reserve Bank of Australia has more to do in raising interest rates, after Wednesday’s shock data showed that Australian inflation had surged to a 33-year high last quarter.
The kiwi gained 0.1% to $0.6486, having fallen 0.43% in the previous session as New Zealand’s fourth-quarter annual inflation came in below its central bank’s forecast.
In Asia, the Japanese yen rose 0.2% to 129.32 per dollar.
Bank of Japan (BOJ) policymakers debated the inflation outlook at their January meeting, with some warning that it could take time for wages to rise sustainably, a summary of opinions at their meeting showed on Thursday.
At that meeting, the BOJ kept ultra-low interest rates unchanged but beefed up a monetary policy tool to prevent the 10-year bond yield from breaching its new 0.5% cap. Its decision defied market expectations of further tweaks to monetary policy.
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