[1/2]A woman counts U.S. dollar bills in her home in Buenos Aires, Argentina, August 28, 2018. Picture taken August 28, 2018. REUTERS/Marcos Brindicci/File Photo Acquire LICENSE RIGHTS
NEW YORK/LONDON, Nov 17 (Reuters) – The dollar posted its second-largest weekly fall against other major currencies this year on Friday, while the yen gained sharply and the dollar traded below 150 yen on concerns about the Global economic slowdown increased economic outlook.
Weaker-than-expected U.S. inflation data on Tuesday and Wednesday raised market expectations about when the Federal Reserve will soon cut interest rates. Such a move would weaken key support for the dollar and could come as early as the first quarter of next year.
The dollar index, which measures the U.S. dollar against six other major currencies, fell to lows last seen on Sept. 1, while the yield on the benchmark 10-year Treasury note fell to a two-month low of 4.379%.
Data showing U.S. single-family home construction rose modestly in October briefly supported the dollar, but with inflation the main market driver, it remained lower on the day.
“The flurry of recent data suggests progress on the inflation front,” said Bipan Rai, head of North American foreign exchange strategy at CIBC Capital Markets in Toronto. “It really feels like the first impulse now is for the dollar to go down.”
The dollar index fell 0.49% on the day, hitting a low of 103.85, extending the dollar’s decline over the past five days to nearly 1.8% – its biggest weekly decline since mid-July.
“Everything points to a slowdown in the fourth quarter in the United States,” said Thierry Wizman, global foreign exchange and interest rate strategist at Macquarie in New York, adding that a key signal would be that companies downgrade their growth expectations judge.
“They’re not seeing the pricing power that they saw in the third quarter, and they’re not seeing the kind of excitement from customers that they saw in the third quarter,” Wizman said.
The euro rose 0.52% to $1.0906 after Eurostat data confirmed euro zone inflation slowed sharply year-on-year in October.
The yen, which has largely been punished by dollar strength this year, broke above 150 for the first time in nearly two weeks, rising 0.69% to 149.68 against the dollar. The U.S. currency has fallen about 1.4% against the Japanese currency since Monday.
Japanese authorities do not have specific exchange rate levels in mind when deciding when to intervene in the foreign exchange market, Deputy Finance Minister Ryosei Akazawa told parliament on Friday.
The yen’s strength reflected the fact that “concerns about shrinking growth are growing” globally, said Lee Hardman, currency analyst at MUFG, adding that Japanese trading conditions were less affected by falling energy prices.
Weaker-than-expected UK retail sales contributed to a string of negative readings this week, but sterling rose to $1.2458 for the day, up 0.42%.
Sluggish data around the world raises concerns about the economic outlook but also suggests central banks may be winning in their battle against rising prices.
Futures markets are pricing in a 93 basis points (bps) cut in the Fed’s federal funds rate by December 2024, market bets that have contributed to dollar weakness.
The money markets have also almost completely priced in interest rate cuts in the euro zone by 100 basis points next year. Still, European Central Bank (ECB) policymakers Robert Holzmann and Joachim Nagel said on Friday that the bloc must be ready to raise interest rates again if necessary.
ECB President Christine Lagarde said earlier in the day that the EU needs a capital markets union, adding that neither heavily indebted governments nor banks could raise the money needed to make the bloc more productive and independent.
(This story has been corrected in paragraph 1 to reflect that the dollar, not the yen, was trading below 150.)
Reporting by Herbert Lash in New York. Additional reporting by Iain Withers in London and Rae Wee and Tom Westbrook in Singapore. Edited by Alexander Smith and Matthew Lewis
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