Forex News: Rate Cut Uncertainty Lifts The Dollar

Rate Cut Uncertainty Lifts The Dollar

(RTTNews) - Macro-economic uncertainties in the U.S. as well as mixed expectations surrounding another rate cut by the Federal Reserve in December boosted the U.S. Dollar close to a percent during the week ended November 21. Challenges to the Fed's data-dependent decision-making approach as well as mixed comments from Fed officials also weighed on sentiment.

The U.S. dollar rallied following indications of a divided Fed in the minutes of the FOMC released on Wednesday. Minutes of the FOMC held in October showed that disagreements among the committee members ranged from the rate decision in October to the outlook for the December FOMC. Opinion was also divided over whether a stalling labor market or stubborn inflation were bigger economic threats for the Committee to take cognizance of.

Concerns over the extent of macro-economic data that would be available to the Fed to make an informed decision when it meets in December, also weighed on Fed rate cut expectations.

The U.S. Bureau of Labor Statistics on Wednesday announced the cancellation of the Job Openings and Labor Turnover release for September originally scheduled to be published in early November. The JOLTS report for October has been rescheduled for release on December 9.

As per the revised schedule, the Bureau has cancelled the Employment Situation Report for October previously scheduled for release on November 7. The report for November previously scheduled for release on December 5 has been postponed to December 16. In such a scenario, markets are doubtful whether the Fed would be willing to take a decision to cut interest rates based on payroll data for the month of September alone which pertains to a period prior to the shutdown.

Data released by the U.S. Bureau of Labor Statistics on Thursday had shown additions to non-farm payrolls rising by 119 thousand in September, rebounding from a revised 4 thousand decline in August. The biggest job rise in five months also beat market forecasts of 50 thousand. The unemployment rate which was remaining steady at 4.3 percent however increased to 4.4 percent, compounding the policy uncertainty ahead of the Fed's interest rate decision which is just 19 days away.

The Dollar Index, a measure of the Dollar's strength against a basket of 6 currencies, gained 0.89 percent during the week. The index closed at 100.18, versus 99.30 a week earlier. Though the Index had dropped to a low of 99.25 on Monday, it touched a high of 100.39 on Friday.

Amidst the dollar's rebound, the EUR/USD pair ended the week on a negative note, closing 0.93 percent lower at 1.1513 versus 1.1621 a week earlier. During the week, the pair ranged between the high of 1.1626 recorded on Monday and the low of 1.1490 touched on Friday.

The GBP/USD pair slipped 0.57 percent during the week amidst inflation easing on expected lines and retail sales unexpectedly declining. The sterling declined to $1.3098, from $1.3173 a week earlier after touching a high of $1.3195 on Monday, and a low of $1.3037 on Thursday. Data released on Wednesday had showed annual inflation rate in the U.K. declining to 3.6 percent in October from 3.8 percent in September. Data released on Friday had showed retail sales volumes falling 1.1 percent month-on-month in October, defying expectations for flat reading and versus an upwardly revised 0.7 percent increase in September.

The Australian Dollar also declined 1.24 percent against the U.S. Dollar during the week ended November 21. The pair ranged between the high of 0.6540 recorded on Monday and the low of 0.6421 recorded on Friday but eventually closed at 0.6456. The pair was at 0.6537 a week earlier. The Aussie's weakness against the dollar came despite minutes of the Reserve Bank of Australia suggesting a cautious path on interest rates.

The yen weakened and the USD/JPY pair rallied 1.19 percent during the past week ended November 21 as the massive stimulus package announced by the new Prime Minister raised concerns about Japan's fiscal health. The pair jumped to 156.39, from 154.55 a week earlier. The week's trading ranged between the low of 154.41 recorded on Monday and the high of 157.90 recorded on Thursday. The yen weakened despite data released on Thursday showing Japan's annual inflation rate rising to 3 percent in October from 2.9 percent in September.

At the onset of the current week and ahead of the upcoming data releases on producer price inflation, retail sales, PCE-based inflation etc., the dollar has retreated mildly. The 6-currency index is currently at 100.03 versus 100.18 at close on Friday as dovish comments from a Fed official spurred rate cut hopes.

Amidst cautious optimism surrounding Russia-Ukraine peace negotiations, the EUR/USD pair has increased to 1.1549 from 1.1513 on Friday. Ahead of the Autumn Budget on Wednesday, the GBP/USD pair has increased to 1.3113 from 1.3098 at the end of the previous week. The AUD/USD pair has edged up to 0.6457 from 0.6456 on Friday amidst anticipation ahead of the inflation data release on Tuesday. The USD/JPY pair has increased to 156.92 from 156.39 at the close of the previous week even as markets weighed comments from authorities aimed at slowing the yen's slide.

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