In this illustration, taken on May 30, 2022, a woman holds US dollar banknotes. REUTERS/Dado Ruvic/Illustration/File Photo Acquire License Rights
LONDON, Nov 6 (Reuters) – The U.S. dollar extended its decline on Monday after posting its biggest fall since July last week as the Federal Reserve dialed back its hawkish rhetoric and U.S. data showed signs of moderation.
The dollar index hovered around a 6-1/2-week low of 104.84 after falling about 1.4% last week.
The euro rose 0.2% to a 7-1/2-week high of $1.0756.
World stocks (.MIWD00000PUS) also had their strongest week in a year last week as expectations that the Fed was done raising interest rates gained momentum.
Other indicators such as weak U.S. jobs data, weaker manufacturing numbers and a fall in longer-term Treasury yields also weighed on the dollar, while fueling the rally in sterling and the Australian dollar and causing the yen to bounce off the weaker side of 150 per dollar .
“We always say bad news (weak economic data) is good news,” said Tina Teng, market analyst at CMC Markets in Auckland. “So it’s good that the Fed and other central banks are expected to end the rate hike cycle sooner.”
She expects the dollar to remain in a weaker trend through November.
Dane Cekov, senior FX strategist at Nordea, called last week’s measures an “overreaction” and said the labor market data was “mixed.”
“There could still be a slightly weaker dollar in the short term, but if the (euro-dollar) rally continues, it has to get some fuel from somewhere.”
Analysts at JPMorgan say a prolonged dollar selloff would require signs of improvement in the euro zone, China and other regions, which they say are “still tenuous.”
The latest Eurozone growth and inflation data, as well as Chinese manufacturing surveys, bear this out.
Recession fears in the euro zone intensified on Monday after a survey showed the decline in business activity accelerated last month as demand in the services sector continued to weaken.
“The final PMIs released today … are consistent with our forecast that euro zone GDP will contract again in the fourth quarter,” said Adrian Prettejohn, an economist at Capital Economics Europe.
“They also suggest that price pressures continue to ease.”
The futures markets suggest that the probability that the European Central Bank will cut interest rates by April is about 80%, the probability that the Fed has made its rate hikes is about 90%, and the probability that the first The Fed’s monetary policy easing will take place as early as June is 86%.
Fed Chairman Jerome Powell spoke of balanced economic risks and sent Treasury yields lower last week, with further declines following weaker U.S. data.
The U.S. government also lowered its funding estimate for this quarter and announced smaller-than-expected increases in long-term debt auctions.
Two-year bond yields have fallen 25 basis points in about two weeks, while 10-year bond yields remained near a five-week low, most recently at 4.593%. The front end of the curve remains strongly inverted.
The Japanese yen fell 0.2% to 149.62.5 per dollar. Nordea’s Cekov said the yen probably needs to be around 155 per dollar for Japanese authorities to consider intervening or revaluing the currency.
The yen hit 151.74 per dollar last week, approaching the October 2022 lows that triggered multiple rounds of dollar selling interventions by the Bank of Japan.
Sterling rose 0.4% to $1.2425. Britain’s third-quarter GDP data is due this week, and although the pound rose sharply last week in a market where the currency is heavily undersold, it is still down around 5.5% since its peak in July sunk.
Among cryptocurrencies, Bitcoin rose slightly to $35,179. The risky asset recently received a boost from the expected end of central bank policy tightening cycles and the prospect of approval of new spot Bitcoin exchange-traded funds.
Reporting by Samuel Indyk, Rae Wee and Vidya Ranganathan. Editing by Kirsten Donovan and Mark Potter
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