Dovish Kashkari & Weak Data Put Dollar Under Further Pressure
The US dollar fell slightly again on Tuesday, extending its decline for a second consecutive day. Market sentiment improved after tensions over the US military operation in Venezuela began to ease, while global stock markets rebounded, boosting investor risk appetite.
Several major currencies gained ground. The euro edged up to around $1.1729, the British pound strengthened by around 0.1% to $1.3552, while the dollar also weakened slightly against the yen to around 156.37. Market reaction to the arrest of Venezuelan President Nicolás Maduro is seen to have subsided quickly, as investors' focus returned to risk and growth.
The dollar index, which measures the greenback's strength against six major currencies, fell by around 0.1% to 98.25. This weakening occurred after the dollar briefly capped a four-day rally, indicating that buying pressure on the dollar is losing steam as markets become more comfortable with risk.
Currencies sensitive to global sentiment have instead emerged as the frontrunners. The Australian dollar broke through its highest level in over a year around $0.6739, while the New Zealand dollar edged up to $0.5797. This movement was in line with strengthening stocks and improving market sentiment.
Data-wise, the dollar also came under pressure after US economic data showed the manufacturing sector remained fragile. Manufacturing activity contracted more than expected in December, falling to its weakest level in about 14 months—making the market reconsider the chances of monetary policy easing.
Dovish comments from Fed officials added to the pressure. Minneapolis Fed President Neel Kashkari alluded to the risk that the unemployment rate could rise further, fueling speculation that room for interest rate cuts remains open even though inflation is not yet completely tame.
However, the market is not yet fully convinced that the Fed will move soon. Interest rate futures still place a strong chance of a rate cut at its late January meeting, although expectations of easing rose slightly after Kashkari's comments.
In Asia, the dollar weakened slightly against the offshore yuan to around 6.983. Meanwhile, the Swiss franc was the exception among major currencies: the dollar actually edged up by around 0.08% to 0.7922, indicating that demand for defensive assets has not completely disappeared from the market.
Source: Newsmaker.id
