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USD edges lower, on track to end 2023 in the red

 

Wednesday, December 27, 2023

Today’s headlines

What’s happening: The US dollar declined on Tuesday, amid low trading volumes due to the holiday season.

What happened: The US dollar index, which measures the greenback’s performance versus a basket of major peers, is on course to record its worst performance since 2020.

Despite the broader decline, the US dollar recorded gains against one of the major currencies on Tuesday.

Why it matters: Moves in the forex market were muted on Boxing Day, with several markets being closed, including the UK, Australia, New Zealand, and Hong Kong. Many US traders, both retail and institutional, were also on holiday although markets in the country remained open on Tuesday.

The US dollar has been under pressure on speculations of the Federal Reserve starting to cut interest rates in 2024, with inflation in the country easing closer to the central bank’s target of 2%.

Data released on Friday showed US core PCE prices increasing by 0.1% month-over-month in November and by 3.2% year-over-year, versus market expectations of 3.3%. The University of Michigan’s consumer sentiment improved to 69.7 in December, versus a preliminary reading of 69.4.

The US dollar index fell around 0.2% to 101.47 on Tuesday and is significantly below its 20-year high of 114.78 recorded on September 28, 2022. The index is also on course to recording a yearly loss of about 1.9%.

The EUR/USD forex pair gained around 0.3% to 1.1045. The euro has climbed from its 20-year low of 0.9528 recorded on September 26, 2022. The European currency is on course to recording a gain of 3.1% in 2023.

The GBP/USD forex pair rose around 0.2% to 1.2725 on Tuesday.

The US dollar gained versus the Japanese yen. The USD/JPY forex pair rose slightly to 142.40. This is still below the 32-year high of 151.94 recorded on October 24, 2022. The forex pair is on course for a gain of around 8.8% in 2023.

Japan’s unemployment rate remained unchanged at 2.5% in November, in-line with market estimates. Traders expect the Bank of Japan to soon end to its ultra-easy monetary policy.

What to watch: Investors await the release of economic data on Richmond Fed manufacturing index, Richmond Fed services index and Dallas Fed services index from the US today. The Manufacturing Activity Index in the Richmond area, which fell to -5 in November, is expected to decline further to -6 in December.

The Fifth District Survey of Service Sector Activity’s revenues index is expected to remain unchanged at 1 in November. Analysts expect the Dallas Fed general business activity index for Texas’ service sector to improve slightly to -11.5 in December, from -11.6 in November.

The markets today

European stocks will be in focus today as investors return from a long holiday weekend

Context: Equity markets in Europe rose slightly on Friday, with investors assessing the central bank’s next policy moves.

Details: Although European stocks have been somewhat volatile in December, the Stoxx 600 index has been on a broader uptrend, adding around 3.3% month-to-date, even after a 6.5% surge in November.

Shares of sportswear retailers fell on Friday, with Adidas and Puma both losing more than 5% after Nike reported weaker-than-expected sales for its second quarter and lowered its sales forecast.

The STOXX Europe 600 Index gained 0.14% to close at 477.60 on Friday, with technology stocks falling 1.3% during the session. Oil and gas stocks ended the day with gains.

UK markets closed early on Friday, with the FTSE 100 index rising 0.04% to settle at 7,697.51. The British economy contracted by 0.1% in the third quarter, versus the initial estimates of a flat reading. UK’s retail sales rose 1.3% in November, higher than market expectations of 0.4%.

Germany’s DAX 40 gained 0.11% to reach 16,706.18, while France’s CAC 40 fell 0.03% to settle at 7,568.82.

What to watch: With no major economic report scheduled from the Eurozone this week, investors will focus on data from the US.

Other Markets: US trading indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.43%, 0.42% and 0.60%, respectively.

The news shaping the markets

Russia attacked a railway station in Ukraine’s southern city of Kherson. The news sent the RUB/USD forex pair higher this morning.


South Korea’s Composite Consumer Sentiment Index increased to 99.5 in December, from 97.2 in the prior month. With the index snapping four months of decline lent support to the KRW/USD forex pair.


US S&P CoreLogic Case-Shiller 20-city home price index rose by 4.9% year-over-year in October. This being the largest increase since November 2022 sent the Dow Jones index higher by over 150 points on Tuesday.


India’s current account deficit narrowed to $8.3 billion in the July-September period, from $30.9 billion in the year-ago quarter. However, the primary income deficit widening to $12.2 billion exerted pressure on the INR/USD forex pair.


Spain’s producer prices declined by 7.4% year-over-year in November, versus a 7.7% fall a month ago, which sent the EUR/USD pair lower in forex trading this morning.

What else to watch today

India’s money supply M3, US Redbook index, Russia’s unemployment rate, business confidence, corporate profits, industrial production, real wages, retail sales and GDP, as well as Argentina’s retail sales.


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