The dollar extended its losses ahead of US producer prices data, which may support the case that the Federal Reserve is nearing its peak rate hikes. Stocks and currencies in Asia rallied on growing risk appetite.
A gauge of the dollar fell for a fifth day Thursday to remain at the lowest in over a year. The world’s reserve currency dropped almost 1% Wednesday after US inflation rate slid to a two-year low, easing pressure on global markets worried of higher policy rates and a potential recession.
The June producer price index data due later Thursday is expected to show a decline from a year ago, according to the median estimate of economists surveyed by Bloomberg. Also in the pipeline is a separate report on jobless claims.
“Since last summer, producer prices have benefited from the loosening of supply chains and declining commodity prices,” Jonathan Church at Bloomberg Economics wrote. “With ongoing goods disinflation in the pipeline, this trend is expected to continue.”
Stocks in Asia advanced along with European and US equity futures. An Asian share gauge is headed for the highest close in more than three weeks, supported by gains in Hong Kong, Australia and Japan.
Technology stocks in Hong Kong also rallied for a fourth day after Chinese Premier Li Qiang met with senior executives from the country’s leading technology firms on Wednesday. The news added to optimism the government is ending its crackdown on the industry amid a weakening economy.
In further signs that Chinese growth is slipping, data showed that the nation’s exports dropped for a second straight month in June. With imports also down, the weak trade data may reinforce calls for more policy support. The yuan fell.
The yen edged lower Thursday after surging 1.3% versus the dollar the previous day. Barclays Securities joined Bank of America in pushing back its forecast for when the Bank of Japan is likely to tweak its yield curve control program to October from July.
Further losses
Some top money managers said the dollar is poised for further losses as US exceptionalism wanes.
“The recent USD underperformance reflects a qualitative shift in market comfort with being short USD as the terminal Fed policy rate looks increasingly capped,” Steven Englander, head of global G-10 FX research and North America strategy for Standard Chartered Bank, wrote in a note.
Treasury yields extended declines in Asian hours. The yield on two-year Treasuries, which is more sensitive to imminent policy moves, dropped around four basis points to 4.71% after sliding 13 basis points Wednesday on the inflation data.
US consumer price index slid to 3% in June year-on-year, down from 4% in May. The core measure — which economists view as the better indicator of underlying inflation — dropped to 4.8%, the lowest since 2021. While traders predict the Fed will still go ahead with one more rate hike this month, the likelihood of further increases appears to be receding.
Brandywine Global Investment Management expects the Fed to tighten by 25 basis points this month and then pause. “We’ve moved beyond that sort of crisis mentality around inflation,” portfolio manager Jack McIntyre told Bloomberg Television. “The rhetoric coming from the Fed post-FOMC should be a lot less hawkish.”
Elsewhere, oil ticked higher on optimism that the Fed’s rate hike cycle is nearing an end. Gold was little changed.
Key events this week:
- Eurozone industrial production, Thursday
- US initial jobless claims, PPI, Thursday
- US University of Michigan consumer sentiment, Friday
- US banks kick off earnings, Friday
Some of the main move in markets:
Stocks
- S&P 500 futures rose 0.2% as of 6:33 a.m. London time. The S&P 500 rose 0.7%
- Nasdaq 100 futures rose 0.4%. The Nasdaq 100 rose 1.2%
- Euro Stoxx 50 futures rose 0.1%
- Japan’s Topix index rose 1%
- Hong Kong’s Hang Seng Index rose 2.6%
- China’s Shanghai Composite Index rose 1.2%
- Australia’s S&P/ASX 200 Index rose 1.6%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.1141
- The Japanese yen fell 0.1% to 138.65 per dollar
- The offshore yuan fell 0.1% to 7.1761 per dollar
- The Australian dollar rose 0.4% to $0.6813
- The British pound rose 0.1% to $1.3005
Cryptocurrencies
- Bitcoin fell 0.1% to $30 310.43
- Ether fell 0.3% to $1,866.34
Bonds
- The yield on 10-year Treasuries was little changed at 3.86%
- Japan’s 10-year yield declined one basis point to 0.465%
- Australia’s 10-year yield declined six basis points to 4.07%
Commodities
- West Texas Intermediate crude rose 0.2% to $75.89 a barrel
- Spot gold was little changed
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