The dollar fell versus its major peers on Friday, as investors grew increasingly confident that the U.S. Federal Reserve may hit the pause button on monetary tightening this year.
Fed Chairman Jerome Powell reiterated on Thursday the U.S. central bank has the ability to be patient on monetary policy given that inflation remains stable. Markets are now pricing in no further rate hikes by the Fed this year.
Fed Vice Chair Richard Clarida also struck a dovish tone, underscoring the central bank’s willingness to remain patient on the issue of raising rates.
“The market has almost priced in that the Fed will not be hiking rates any further. To get the dollar weaker, market now has to expect a rate cut...I don’t see that happening,” said Sim Moh Siong, currency strategist at Bank of Singapore.
Sentiment was still slightly cautious in Asian trade on a lack of concrete details from the United States and China on any progress in their trade dispute after a three-day meeting in Beijing. The two sides are more than halfway through a 90-day truce agreed by U.S. President Donald Trump and his Chinese counterpart Xi Jinping.
Traders still remain optimistic that a trade deal between the world’s largest economies will eventually materialize. U.S. Treasury Secretary Steven Mnuchin said late on Thursday that Chinese Vice Premier Liu He will “most likely” visit Washington later in January for trade talks.
Bank of Singapore's Sim added that currencies such as the Australian dollar AUD, a gauge of risk appetite, and the New Zealand dollar NZD, are likely to see further gains if a U.S.-Sino trade deal is reached.
The Aussie dollar was last at $0.7201, gaining 0.2 percent versus the greenback, while the kiwi firmed 0.44 percent to $0.6808.
The dollar also fell 0.47 percent versus the offshore yuan CNH to 6.7602. The yuan is now at its strongest since late July last year.
The dollar index fell by 0.17 percent to 95.37. The index has fallen around 2.2 percent since mid-December on expectations that a slowdown in growth, both in the United States as well as globally, will restrict the Fed from raising rates in 2019.
In 2018, the greenback outperformed its peers, gaining 4.3 percent as the Fed hiked rates four times on the back of a strong domestic economy, falling unemployment and rising wage pressures. This has caused traders to turn bearish on the dollar.
The euro EUR gained 0.2 percent to $1.1519, after losing 0.4 percent of its value in the previous session. The single currency has been pressured by a slew of weaker-than-expected economic data, especially from France and Germany.
The European Central Bank is widely expected to remain accommodative in 2019, which should keep a lid on the single currency.
Elsewhere, GBP traded marginally firmer, fetching $1.2752 in early Asian trade with traders focused on the progress of Brexit. British Prime Minister Theresa May must win a vote in parliament to get her Brexit deal approved or risk seeing Britain’s exit from the European Union descend into chaos. The vote is now due to take place on Jan. 15. The numbers are not in May’s favor and her chances of winning the vote look extremely slim. The dollar weakened versus the Canadian dollar CAD by 0.17 percent to C$1.3211. The greenback has lost 3.25 percent against the loonie over the last six sessions, with the commodity-linked currency bolstered by a rebound in oil prices.
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