The dollar fell across the board for a second straight day on Friday, as investors favoured riskier currencies following a cooler-than-expected U.S. inflation data that boosted the case for the Federal Reserve to ease off its hefty interest rate hikes. Friday’s dollar weakness was an extension of the move set off after Thursday’s data that showed U.S. consumer inflation rose 7.7% year-on-year in October, its slowest rate since January and below forecasts for 8%.
The dollar’s long rally over the last two years had drawn a host of dollar bulls leading to crowded positioning and Thursday’s data left a lot of them looking for a quick exit, strategists said. “It’s not just short term trend-followers, momentum players having to get out of positions, but some long-term structural long dollar positions have to be unwound,” said Marc Chandler, chief market strategist, at Bannockburn Global Forex in New York.
The dollar was 1.41% lower against the Japanese yen at 138.96 yen; while the euro advanced 1.09% against the greenback to $1.0322. The dollar found little support from survey data on Friday that showed U.S. consumer sentiment fell in November, pulled down by persistent worries about inflation and higher borrowing costs.
The risk sensitive Australian and New Zealand dollars both advanced more than 1% against the greenback. Against a basket of currencies, the dollar was down about 3% over two sessions, on pace for its largest two-day percentage loss since March 2009. The index is up about 19% for the year.
“Yes, more people have become convinced the dollar has peaked but the move has been so sharp that I caution people against chasing it,” Bannockburn’s Chandler said. Investor risk appetite got an additional boost from Chinese health authorities easing some of the country’s strict COVID-19 restrictions, including shortening quarantine times for close contacts of cases and inbound travellers.
The futures market shows investors are pricing in a 71.5% chance of a 50-basis-point U.S. rate increase next month, up from around 50/50 a week ago. Sterling, meanwhile, rose 0.58% against the dollar to $1.17785 after UK data showed the economy did not contract as much as expected in the three months to September, although it is still entering what is likely to be a lengthy recession.
The dollar was 1.8% lower against the Swiss franc at 0.94655 francs after Swiss National Bank Chairman Thomas Jordan said on Friday the bank was prepared to take “all measures necessary” to bring inflation back down to its 0-2% target range. Cryptocurrencies remained under pressure given ongoing turmoil in the crypto world after exchange FTX’s fall. FTX’s native token, FTT, was last down 20.8% at $2.952, taking its month-to-date losses to nearly 90%.
Bitcoin fell 4.1% to $16,836.
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