SINGAPORE- The US dollar was on the back foot on Monday as China’s re-opening of its borders, and increasing hopes of the Federal Reserve slowing the pace of its interest rate hikes boosted risk sentiment.
Sterling was on the charge again on Monday, gaining 0.42 percent to $1.2143, after spiking 1.5 percent on Friday. The euro was up 0.28 percent at $1.0674, after closing 1.17 percent higher on Friday.
US data showed a jump in the workforce and easing wage growth, while there were further signs of an economy slowing down, with the services industry activity contracting for the first time in more than 2-1/2 years in December.
“Data on Friday gave market some hope that perhaps the US is slowing down and the Fed does not need to a lot more,” said Moh Siong Sim, currency strategist at Bank of Singapore. “But the jury is still out whether we are really heading towards a soft landing scenario.”
Analysts have pointed out that the still tight labor market is likely to concern Fed officials and keep them on their hawkish path.
“Right now, it’s been softer wages, softer inflation but the job market is still a bit too hot,” Sim said.
The Fed fund futures now imply around a 25 percent chance of a half-point hike in February, down from around 50 percent a month ago.
The US central bank raised interest rates by 50 basis points last month after delivering four consecutive 75 basis point hikes last year but said it was likely to keep interest rates higher for longer to tame inflation.
The dollar index, which measures the US dollar against six major currencies, fell 0.145 percent to 103.570 on Monday, after sliding 1.15 percent on Friday as investors moved to riskier assets.
Also helping sentiment was China re-opening its borders, dismantling much of its stringent ‘zero-COVID’ policy, with travellers coming into the country by air, land and sea.
Optimism over a swift economic recovery buoyed China’s yuan, to a near five-month high against the dollar on Monday. — Reuters
