SINGAPORE (Reuters) – The dollar held a soft tone versus its peers on Friday, on rising expectations the U.S. Federal Reserve may hit the pause button on monetary tightening if the economy slows this year.
Fed Chairman Jerome Powell reiterated on Thursday the U.S. central bank has the ability to be patient on monetary policy given that inflation remains stable. Markets are now pricing in no further rate hikes by the Fed this year.
Fed Vice Chair Richard Clarida also struck a dovish tone, further cementing the central bank’s willingness to remain patient on the issue of raising rates.
Sentiment was cautious in early Asian trade on a lack of concrete details from the United States and China on any progress made in their trade dispute after a three-day meeting in Beijing. The two sides are more than halfway through a 90-day truce agreed by U.S. President Donald Trump and his Chinese counterpart Xi Jinping.
“The market has almost priced in that the Fed will not be hiking rates any further. To get the dollar weaker, market now has to expect a rate cut…I don’t see that happening,” said Sim Moh Siong, currency strategist at Bank of Singapore.
Sim added that riskier currencies such as the Australian dollar and New Zealand dollar are likely to see further gains if we get a U.S.-Sino trade deal. The Aussie dollar was last at $0.7185, marginally higher versus the greenback.
The dollar index was marginally lower at 95.5 on Friday. The index has fallen around 2.2 percent since mid-December on expectations that a slowdown in growth, both in the United States as well as globally, will restrict the Fed from raising rates in 2019.
In 2018, the greenback outperformed its peers, gaining 4.3 percent as the Fed hiked rates four times on the back of a strong domestic economy, falling unemployment and rising wage pressures. But now traders see limited upside in the greenback.
The safe-haven yen strengthened 0.1 percent to 108.32 per dollar, reflecting investors’ cautious wait-and-see mode.
The euro gained 0.1 percent at $1.1502, after losing 0.4 percent of its value in the previous session. The single currency has been pressured by a slew of weaker-than-expected economic data, especially from France and Germany.
The European Central Bank is widely expected to remain accommodative in 2019, which should keep a lid on the single currency.
Elsewhere, sterling traded marginally firmer, fetching $1.2752 in early Asian trade with traders focused on the progress of Brexit.
British Prime Minister Theresa May must win a vote in parliament to get her Brexit deal approved or risk seeing Britain’s exit from the European Union descend into chaos. The vote is now due to take place on Jan. 15. The numbers are not in May’s favour and her chances of winning the vote look extremely slim.
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