The dollar fell against the euro on Wednesday (25th), but losses against the euro were limited as traders were reluctant to make too many big bets ahead of next week’s meetings, including the Federal Reserve and the European Central Bank.
Also, the Lunar New Year holiday is being celebrated across much of Asia, keeping most major currencies range-bound.
Traders widely expect the Fed to raise interest rates by 25 basis points (bps) next Wednesday, down from 50 basis points in December. Meanwhile, the European Central Bank all but committed to raising its key interest rate by 50 basis points next week.
Karl Schamotta, chief market strategist at Corpay, sees the trading range still narrowing significantly ahead of next week’s central bank meeting, saying that markets will be expected later this week as the U.S. Commerce Department releases its preliminary estimate for fourth-quarter GDP on Thursday. The trend is likely to accelerate.
The euro was up 0.23 percent at $1.0913, near Monday’s nine-month high of $1.0927.
The single currency was also supported by data on Tuesday showing that business activity in the euro zone unexpectedly returned to modest growth in January, while expectations of further rate hikes by the European Central Bank also supported the euro. In contrast, U.S. business activity contracted for the seventh straight month in January.
The Australian dollar surged to a more than five-month high on Wednesday after better-than-expected inflation data supported the case for further rate hikes by the Reserve Bank of Australia. AUD/USD rose 0.76% to $0.7099 on Wednesday.
USD/JPY was down 0.42% at 129.615 after hitting a near eight-month high of 127.215 on Jan. 16.
The most volatile currency on Wednesday was the Canadian dollar. The Bank of Canada announced on Wednesday that it raised interest rates by 25 basis points, in line with expectations. The central bank mentioned in its statement that when assessing the impact of recent policy measures, it may maintain interest rates at this level, which means that the interest rate hike cycle is expected to come to an end.
This statement and the lower interest rate hike rate caused the Canadian dollar to weaken across the board. USD/CAD rose from 1.3365 to 1.3426 before paring the gains and fluctuating around.
CIBC analysts said the Bank of Canada raised interest rates again, but sent a clearer signal than expected, and the central bank will now take a wait-and-see approach. The Monetary Policy Report’s forecasts for GDP growth and inflation were little changed from October, suggesting that this rate hike may be the last for this cycle.
Prices as of 8:00 a.m. Taipei time on Thursday (26th):
The dollar index was at 101.412. – 0.26 % The euro/dollar (EUR/USD) exchange rate quoted 1 euro to 1.0922 dollars. +0.06 % GBP/USD was quoted at 1.2413 US dollars to 1 British pound. +0.10% Australian Dollar to US Dollar (AUD/USD) exchange rate quoted 1 Australian Dollar to 0.7109 US Dollar. +0.10% The U.S. dollar/Canadian dollar exchange rate (USD/CAD) is quoted as 1 U.S. dollar to 1.3384 Canadian dollars. -0.06% The dollar was trading at 129.26 yen per dollar. -0.25%