On Friday morning, the dollar was down in Asia, heading for its worst weekly drop in eight months. Long holdings were reduced as investors gambled that many rate rises in the United States are completely priced in for 2022. The US Dollar Index measures the dollar’s value against a basket of other currencies. By 10:10 p.m. ET, it had fallen 0.07 % to 94.173. (3:10 AM GMT). It’s down approximately 0.9 % this week. It is on track to have its worst weekly %age drop since May 2021, putting an end to a six-month run.
The JPY/USD currency pair traded at 113.80, down 0.33 %. The Australian dollar fell 0.12% to 0.7275, while the New Zealand dollar fell 0.7% to 0.6855. The USD/CNY traded at 6.3605, up 0.01 %. Exports increased 20.9 % year over year in December, while imports increased 19.5 %. At $94.46 billion, the trade balance was positive. The GBP/USD traded at 1.3725, up 0.15 %. Despite the political crisis threatening Prime Minister Boris Johnson’s position, the pound has been supported by the belief that the UK economy will weather the newest COVID-19 outbreak and that the Bank of England would boost interest rates starting in February 2022.
US Economy Infected with Inflation
With inflation in the United States reaching its highest level since the early 1980s, selling pressured the dollar past critical support versus the euro. The euro is now trading at $1.1457, up over 0.8 % this week. Meanwhile, interest rate futures in the United States have almost locked in four rate rises in 2022, backed by Fed officials such as vice-chair candidate Lael Brainard.
“Investors appear to be signaling that the policies are too extreme,” said Derek Halpenny, MUFG’s head of global markets research. According to the note, that would be the impetus for fresh dollar strength. Investors are looking forward to labor and inflation statistics from Australia and New Zealand for the riskier Antipodean currencies later this month. Meanwhile, the Bank of Korea raised its interest rate to 1.25 % earlier in the day when it announced its policy decision.