# Dollar skulks at eight-month low, central bank meetings in focus
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-01-26
Category: TRADING
Category URL: https://financedigest.com/category/trading
Meta Title: Dollar Hits 8-Month Low Against Peers Amid Recession Fears
Meta Description: Discover how a gloomy U.S. corporate earnings season and recession fears led to a dip in the dollar's value. Read more now on Reuters.
URL: https://financedigest.com/dollar-skulks-at-eight-month-low-central-bank-meetings-in-focushtml

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By Rae Wee and Alun John

SINGAPORE/LONDON (Reuters) – The dollar fell to an eight-month low against its peers on Thursday, as a gloomy U.S. corporate earnings season stoked recession fears [ahead of a slew of central bank meetings next week](https://www.financedigest.com/dollar-dips-ahead-of-inflation-data-later-this-week.html "Dollar dips ahead of inflation data later this week")

The euro squeezed its way to a new nine-month high of $1.09295 and was last just below that level, [little changed](https://www.financedigest.com/stocks-dollar-little-changed-as-inflation-data-sends-mixed-signals.html "Stocks, dollar little changed as inflation data sends mixed signals") on the day. Sterling was up 0.15% to $1.2419, mounting a new [bid on territory above $1.245 having failed](https://www.financedigest.com/behind-ftxs-fall-battling-billionaires-and-a-failed-bid-to-save-crypto.html "Behind FTX’s fall, battling billionaires and a failed bid to save crypto") to get there last week.

This meant the U.S. dollar index, which measures the greenback against a [basket of currencies](https://www.financedigest.com/the-yuan-makes-its-official-entry-into-rawbanks-currency-basket.html "The yuan makes its official entry into RAWBANK’s currency basket"), fell as low as 101.5, its lowest since the end of May.

Downbeat [earnings and guidance](https://www.financedigest.com/takeover-target-thg-misses-downgraded-2022-earnings-guidance.html "Takeover-target THG misses downgraded 2022 earnings guidance") from U.S. companies and a string of tech sector layoffs have deepened fears of an economic downturn in the United States, leading [investors to pare back](https://www.financedigest.com/glencore-courts-120-teck-investors-for-bid-backing-as-spinoff-vote-looms-source.html "Glencore courts 120 Teck investors for bid backing as spinoff vote looms -source") expectations on how much longer the Federal Reserve will need to aggressively raise interest rates.

“There are now signs the U.S. [economy may be slowing](https://www.financedigest.com/thomson-reuters-keeps-outlook-but-wary-of-slowing-economy.html "Thomson Reuters keeps outlook, but wary of slowing economy") in a more meaningful manner,” said economists at Wells Fargo.

With the Fed no longer leading the charge on interest [rate hikes](https://www.financedigest.com/central-banks-keep-hiking-rates-amid-banking-turmoil.html "Central banks keep hiking rates amid banking turmoil") and U.S. economic [trends set](https://www.financedigest.com/top-10-fintech-trends-set-to-take-off-in-2022.html "Top 10 Fintech Trends Set To Take Off In 2022") to worsen, we now believe the U.S. dollar has entered a period of cyclical depreciation against most foreign currencies.”

The Fed’s policy-setting committee will begin a two-day meeting next week, and markets have priced in a 25-basis-point (bps) interest rate hike, a step down from the central [bank’s 50 bps and 75 bps increases seen](https://www.financedigest.com/bank-of-canada-seen-on-hold-even-as-economy-accelerates.html "Bank of Canada seen on hold even as economy accelerates") last year.

Ahead of that, the Commerce Department is due to release advance estimates of U.S. fourth-quarter gross domestic product later on Thursday.

Markets expect policymakers at the Bank of [England](https://www.financedigest.com/bank-of-england-fines-former-tsb-executive-over-2018-it-failure.html "Bank of England fines former TSB executive over 2018 IT failure") and European Central Bank (ECB), which also meet next week, to deliver 50 bps rate hikes. The [ECB is seen most likely to remain hawkish](https://www.financedigest.com/hawkish-ecb-comments-push-up-rate-hike-expectations.html "Hawkish ECB comments push up rate-hike expectations").

The Canadian dollar traded at 1.3387 per U.S. dollar, after the [Bank of Canada on Wednesday raised its key interest rate to 4.5% but became the first major central bank fighting global inflation to say](https://www.financedigest.com/boes-bailey-says-bank-reforms-worked-but-questions-about-liquidity-buffers.html "BoE’s Bailey says bank reforms worked but questions about liquidity buffers") it would likely hold off on further increases for now.

That move too has weighed on the U.S. dollar

The decision has understandably reinforced market expectations that other major central [banks including the Fed will soon follow the BoC by pausing their own hiking](https://www.financedigest.com/big-ecb-hike-adds-fuel-to-the-banking-sector-fire.html "Big ECB hike adds fuel to the banking sector fire") cycles during the (first half) of this year,” said Lee Hardman, MUFG senior currency analyst in a note.

He said the pullback in Fed rate hike [expectations following the BoC’s policy decision had triggered a US dollar](https://www.financedigest.com/dollar-drops-as-inflation-cools-more-than-expected.html "Dollar drops as inflation cools more than expected") sell-off alongside Canadian dollar weakness, which “highlights that the US dollar remains vulnerable to a further dovish repricing of Fed rate hike expectations.

The Aussie touched a new five month high of $0.7129 on greater expectations that more Reserve [Bank of interest rate increases are due after Wednesday’s shock data showed that Australian inflation](https://www.financedigest.com/bank-of-england-still-needs-to-see-the-job-through-on-inflation-pill.html "Bank of England still needs to ‘see the job through’ on inflation: Pill") had surged to a 33-year high last quarter.

[Trading was a little thin with Australia](https://www.financedigest.com/how-to-begin-investor-trading-in-australia.html "How to begin investor trading in Australia") closed for a holiday.

The dollar rose 0.17% against the [Japanese yen](https://www.financedigest.com/japanese-yen-gains-as-ueda-set-to-be-named-next-boj-governor.html "Japanese yen gains as Ueda set to be named next BOJ governor") to 129.84.

Bank of Japan (BOJ) policymakers debated the [inflation outlook at their January](https://www.financedigest.com/uk-shop-price-inflation-hits-record-8-in-january-brc-2.html "UK shop price inflation hits record 8% in January: BRC") meeting, with some warning that it could take time for wages to rise sustainably, a summary of opinions at their meeting showed on Thursday.

At that meeting, the BOJ kept ultra-low interest [rates unchanged but beefed up a monetary policy tool to prevent the 10-year bond yield](https://www.financedigest.com/wall-st-indexes-mixed-treasury-yields-tick-up-as-higher-rates-loom.html "Wall St indexes mixed, Treasury yields tick up as higher rates loom") from breaching its new 0.5% cap. Its decision defied market expectations of further [tweaks to monetary policy](https://www.financedigest.com/yen-retreats-after-boj-policy-tweak-sparked-surge.html "Yen retreats after BOJ policy tweak sparked surge").

(Reporting by Rae Wee and Alun John; Editing by Bradley Perrett and Kim Coghill)


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