Dollar sank, headed for the biggest monthly drop in a year

Reuters: The U.S. dollar sank to its lowest in more than three months on Tuesday as investors continued to take the view that growth in the world’s largest economy is starting to slow down, with the market starting to price in a rate cut by the first half of the year.

U.S. DOLLAR SANK

U.S. rate futures were pricing in a 33% chance of a rate cut in March, rising to a roughly 65% probability in May, according to the CME’s FedWatch tool. Those odds were at 21% and roughly 50% late on Monday. The dollar extended losses after Fed Governor Christopher Waller, a hawkish policymaker, flagged a possible rate cut in the months ahead.

If the decline in inflation continues “for several more months, three months, four months, five months, we could start lowering the policy rate just because inflation is lower,” he said. The dollar index, which measures its value against six major currencies, fell as far as 102.60, the lowest since mid-August. It was last down 0.3% at 102.82. The index is on track for a loss of 3.6% in November, its worst performance since November 2022. “The dollar bounced over the summer, with the help of divergence, the outperformance of the U.S. economy. Now the dollar is weakening on the new convergence,” said Marc Chandler, chief market strategist, at Bannockburn Forex in New York.

“It’s not that Europe or China is looking much better. But they’re slowing down and the U.S. looks like it’s slowing down.” Tuesday’s U.S. data, however, showed mixed results. U.S. consumer confidence rose in November after three straight monthly declines, a survey showed. The Conference Board said its consumer confidence index increased to 102.0 this month from a downwardly revised 99.1 in October. At the same time, U.S. annual home price growth accelerated again in September. Home prices were up 6.1% on a year-over-year basis, up from an upwardly revised 5.8% increase in August.

ALSO READ: Rand Report: Further Rand weakness

However, the Richmond Fed manufacturing index dropped into negative territory at -5 in November. In other currencies, the euro rose to a 3-1/2-month peak of $1.1009. It last changed hands at $1.0981, up 0.3%. Sterling also gained, climbing to its highest since Sept. 1. The pound was last up 0.4% at $1.2685. Traders are now eyeing the U.S. core personal consumption expenditures price index – the Fed’s preferred measure of inflation – this week for more confirmation that inflation is slowing.

PCE tops off a slew of other key economic events this week, including flash inflation data from major euro zone economies, with bloc-wide data due Thursday, Chinese purchasing managers’ index data and an OPEC+ decision on crude output. The dollar fell 0.8% to 147.49 yen, with the Japanese currency continuing its recovery from the brink of 152 per dollar earlier in the month. The dollar also slid 0.2% to 0.8762 Swiss francs, its lowest level since the start of September, and the Australian dollar briefly touched a near four-month high of US$0.6665.

The New Zealand dollar hit its highest since August at US$0.6147. It was last at US$0.6127, up 0.5%. The Reserve Bank of New Zealand has its monetary policy meeting on Wednesday, where it is expected to keep interest rates steady at 5.50% for the fourth straight time. In cryptocurrencies, bitcoin rose 2.7% to $38,228.

ALSO READ: Fuel price LATEST: Petrol and diesel DROP brings early Christmas cheer

BRITISH POUND

Reuters: Britain’s pound was holding near its highest level in almost three months on Tuesday and remains on track for its biggest monthly rise in a year against the dollar as resilient data and a higher-for-longer rates message support the currency. Bank of England Deputy Governor Dave Ramsden on Tuesday told a conference in Hong Kong that monetary policy would need to remain restrictive for some time to defeat inflation, pouring cold water on the idea that interest rate cuts are imminent. BoE governor Andrew Bailey shares that view, repeating on Monday that it was too soon to have a discussion about loosening policy.

Money markets are still pricing around 63 basis points of policy easing from the BoE by the end of next year, although that is less than markets price for both the Federal Reserve and the European Central Bank, where around 90 basis points of cuts are priced in. “The Bank of England has been at pains to stress to markets that UK rate pricing for cuts in 2024 is misplaced,” said Kamal Sharma, G10 FX strategist at Bank of America. “The message finally appears to be resonating.”

ALSO READ: Eskom blames HEATWAVE for loadshedding!

By 1147 GMT, the pound was little changed against the dollar at $1.2627, just below the near three-month high of $1.2644 reached on Monday. The currency has risen almost 4% in November, its biggest monthly rise since a more than 5% gain in November last year. The pound was also trading flat at 86.76 pence per euro. Analysts said last week’s changes to fiscal policy, which included tax cuts for workers, were also helping the pound. “The Autumn Statement had some inflationary measures,” said Danske Bank analyst Kirstine Kundby-Nielsen. “Some of the more hawkish commentary from the Bank of England has definitely added to the narrative that inflation will be more sticky,” Kundby-Nielsen added.

Data has been robust, with business activity unexpectedly returning to marginal growth in November after three months of contraction, according to the S&P Global/CIPS Purchasing Managers’ Index. “Whilst encouraging, we note that expectations around UK data have been weak, and whilst the recent flow has been encouraging, the macro outlook will likely remain poor in 2024,” BofA’s Sharma said. “High inflation and anaemic growth do not provide the basis for a strong currency, but for now, the rebound in data surprises has provided the catalyst for the back-up in UK yields.”

ALSO READ: Newspaper front pages from around the world, 29 November 2023

SOUTH AFRICAN RAND

Reuters: The South African rand was stable on Tuesday, supported by the conviction among global investors that the U.S. Federal Reserve will not raise interest rates again. At 1606 GMT, the rand traded at 18.6500 against the dollar, the same level as its previous close. The dollar was last trading down 0.3% against a basket of major currencies and on track for a loss of more than 3% in November, its worst performance in a year. In the absence of major local drivers, global market factors were in the driving seat for the rand on Tuesday. “The local currency was supported by improved risk sentiment and the gold price consolidating above the $2,000 level,” said Andre Cilliers, currency strategist at TreasuryONE.

COST OF LIVING: SASSA money for Christmas presents?

Later this week South Africa-focused investors will turn their attention to October trade, budget, producer inflation and private sector credit figures. The global focus will be on the Fed’s preferred measure of inflation and an OPEC+ policy meeting. On the Johannesburg Stock Exchange, the Top-40 index and the All-share index rose 0.3%. The benchmark 2030 government bond was stronger, the yield down 12 basis points to 10.025%.

ALSO READ: SASSA December grants can be collected from FRIDAY

GLOBAL MARKETS

Reuters: MSCI’s global stock index advanced on Tuesday while the dollar fell as a Federal Reserve official signaled that the U.S. central bank was done raising rates and could even consider rate cuts if inflation keeps easing. The U.S. dollar index hit a 3-1/2 month low and was on track for its biggest monthly drop in a year as investors took the view that growth in the world’s largest economy is starting to slow down, with the market starting to price in a rate cut by the first half of the year. Fed Governor Christopher Waller bolstered these bets by flagging the possibility of lowering the Fed policy rate in the months ahead if inflation continues to come down. Waller also said he was “increasingly confident” the current interest rate setting would prove adequate to lower inflation to the Fed’s 2% target.

Another Fed governor, Michelle Bowman, said the central bank will likely need to raise borrowing costs further in order to bring inflation back down to its target. Traders appeared to take their cues from Waller with increased bets for the first rate cut taking place as soon as March with the probability for a 25 basis-point cut last at nearly 33%, up from 21.5% on Monday, according to the latest data from CME Group’s Fedwatch tool. The majority expected a cut of at least one notch in May, according to CME data.

The market saw Waller’s comments as the first sign the Fed “recognizes they might be able to cut rates next year” while other officials “took some of the euphoria” away, according to Anthony Saglimbene, Ameriprise chief market strategist. And Saglimbene said, “It’s normal you’ll see stocks consolidate in the last few days of a really strong month. For the rest of the year, momentum is biased to the upside.” While trading in stocks was choppy, Wall Street indexes managed to close higher. The Dow Jones Industrial Average rose 83.51 points, or 0.24%, to 35,416.98, the S&P 500 gained 4.46 points, or 0.10%, to 4,554.89 and the Nasdaq Composite added 40.73 points, or 0.29%, to 14,281.76.

ALSO READ: Payday loans: are they a good idea?

MSCI’s gauge of stocks across the globe gained 0.27%. Also on Tuesday, a survey showed U.S. consumer confidence rose in November after three months of declines, though households still anticipated a recession over the next year. Later this week the spotlight will be on the U.S. October personal consumption expenditures report, which includes core PCE, which is the Fed’s preferred measure of inflation. Also euro zone consumer inflation figures should give further clarity on where prices and monetary policy are headed there.

After the Fed commentary, U.S. Treasury yields dipped with benchmark 10-year notes down 6 basis points to 4.328%, from 4.388% late on Monday. In currencies, the dollar index fell 0.368%, with the euro up 0.32% to $1.0988. The Japanese yen strengthened 0.82% versus the greenback at 147.47 per dollar, while Sterling was last trading at $1.2694, up 0.55% on the day. With some encouragement from the weaker dollar, spot gold prices were up 1.4% at $2,040.79 an ounce after hitting their highest level since May in their fourth consecutive gain.

Oil prices settled higher on Tuesday on the possibility that OPEC+ will extend or deepen supply cuts, a storm-related drop in Kazakh oil output and the weaker U.S. dollar. U.S. crude settled up 2.07% at $76.41 per barrel and Brent settled at $81.68, up 2.13% on the day. Additional reporting by Sinéad Carew, Gertrude Chavez-Dreyfuss and Chuck Mikolajczak in New York, Amanda Cooper in London, Ankur Banerjee Editing by Frances Kerry, Will Dunham, Marguerita Choy and Chizu Nomiyama

ALSO READ: When does the December 2023 fuel price drop? Plus eco-drive tips