Dollar Falls as Traders Place Bearish Wagers

The dollar slid against peers on Monday, as traders placed bearish wagers because of rising anticipations that the Federal Reserve would put its policy tightening on pause in 2019.

Ladders dollar.

Risk appetites were strong in Asian trade, because of China’s aggressive financial easing on Friday to address a sharp economic stoppage and to hopes that Washington and Beijing can strike a comprehensive trade deal.

The euro progressed 0.22 percent versus the dollar while the Australian dollar, often considered a barometer of worldwide risk appetite, increased 0.2 percent and touched its highest level since December 20.

Against the yen, the greenback dropped 0.41 percent, fetching 108.09.

“The newsflow we have seen since Friday has lifted sentiment,” said Michael McCarthy, chief markets strategist at CMC Markets in Sydney. “The market certainly liked what Fed Chair Jerome Powell said on Friday and the reaction has been negative for the dollar.”

McCarthy also said China’s cuts in bank reserve requirements “are very important and have lifted commodities… this should be supportive for the Australian dollar.”

On Friday, Powell told the American Economic Association that the Fed is not on a present path of interest rate hikes and that it will be responsive to the downside risks markets are pricing in.

In spite of Friday’s stronger than expected U.S. December jobs data, a lot of analysts believe the world’s biggest economy is losing momentum and further rate hikes is not what it really needs. Powell’s comments that the central bank is “prepared to shift the stance of policy” boosted investor sentiment and sent U.S. stocks rising on Friday.

The dollar outperformed other currencies in 2018 because of the Fed being the only major central bank to hike rates. If the Fed holds rates in 2019, analysts see small chances of further greenback appreciation.

U.S. 2-year and 10-year Treasury yields dropped sharply over the last two weeks indicating that bond traders see small chance of the Fed raising rates this year on the increased probability of a development stoppage in the world’s biggest economy.

Nonetheless, few analysts still see possibility for the Fed to rise rated in 2019.

“Last Friday’s strong US jobs data suggested that recession fears were overblown,” said Philip Wee, currency strategist at DBS in a note.

“With the Fed only looking to pause rate hikes, the market is likely to have gotten ahead of itself in pushing at the US 2-year and 10-year bond yields below the Fed Funds Rate last week,” he added.

Wee said he still anticipates the Fed to hike rates twice this year.

The dollar index, a gauge of its value versus six major peers, stood at 95.96, fell 0.2 percent from an intraday high of 96.16.

After a slew of weaker-than-expected industrial data, Chinese officials cut reserve needs for all banks by 100 basis points. The move frees up $116 billion for new loaning as it attempts to lessen the risk of a pronounced tumble in the pace of financial development.

The size of the cut was at the higher end of market anticipations, and the net funds released would be the biggest amount in the five reserve requirement decreases since January 2018.

Analysts anticipate further financial stimulus from Beijing in 2019. Ray Attrill, head of currency strategy at National Australia Bank, thinks it can be reasonable to expect as many as four 100 bps cuts this year.

The dollar lost 0.2 percent against the offshore yuan to 6.8490.

Financial markets are also hopeful about U.S. administrators meeting with their counterparts in Beijing this week for the first face-to-face talks since President Donald Trump and President Xi Jinping on Dec. 1 decided to a 90-day truce in their trade war.

The both sides have until March 1 to make a deal, after which Trump has promised to ramp up tariffs to 25 percent, from 10 percent, on $200 billion worth of Chinese imports.

Sterling increased 0.12 percent against the dollar at $1.2742.

Commodity currencies such as the Canadian dollar grew 0.1 percent versus the greenback at C$1.3361 because of a rebound in oil prices.

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