Dollar on the defensive as traders await key US economic data

Expectations that the US Federal Reserve will cut rates two more times this year has weighed on the dollar. (Reuters pic)SINGAPORE: The US dollar hugged tight ranges on Wednesday ahead of a slew of US economic data that could set the tone for the US Federal Reserve’s rate outlook, a factor traders consider more consequential for currencies than ongoing geopolitical tensions.Markets have thus far largely brushed off deepening geopolitical fractures around the world, with stocks rallying and currencies and bonds little budged following the US intervention in Venezuela and the capture of President Nicolas Maduro.Also on traders’ radar, China on Tuesday banned exports of dual-use items to Japan that can be used for military purposes, marking Beijing’s latest move in reaction to an early November remark by Japanese Prime Minister Sanae Takaichi about Taiwan.“I think there is still a lot of uncertainty as to whether the regime will change in Venezuela and what it will mean for the oil supply in Venezuela. So I think markets for now are taking a pretty optimistic view, and are more concerned about US economic data,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.“The fact that China implemented more export controls against Japan also didn’t really move FX markets much either.”Currencies were largely subdued in Asia, though the dollar struggled for momentum and fell 0.18% against the Japanese yen to 156.39.Sterling was little changed at US$1.3506, while the euro edged 0.04% higher to US$1.1694. The common currency had lost 0.3% in the previous session after data showed inflation slowed more than expected in some of the euro zone’s biggest economies last month.Overall, currency traders were in a wait-and-see mode ahead of a batch of US labour market data, with figures on private payrolls and job openings due later in the day, before Friday’s closely watched nonfarm payrolls report comes due.Ahead of the outcome, the dollar index eased slightly to 98.54.The Aussie dollar hit its highest since October 2024 at US$0.6766, as a mixed inflation report kept alive the prospect of a near-term hike in interest rates. The New Zealand dollar bought US$0.5783.“The most impactful publication will be ADP’s monthly jobs report, as an uptick in unemployment is one of the significant risks in this new year, alongside the potential failure of heavy investments in AI to deliver blockbuster returns,” Jose Torres, senior economist at Interactive Brokers, said of Wednesday’s releases.Investors have struggled to get an accurate read of the world’s largest economy following a record US government shutdown last year which hampered the collection and release of key economic data.However, they remain convinced that the Fed will cut rates two more times this year.That has weighed on the dollar, though growing divisions within the Fed and US President Donald Trump’s imminent pick for the next Fed Chair have further complicated the outlook for US monetary policy.

MatchPoint Times

Dollar on the defensive as traders await key US economic data

Figures on private payrolls and job openings are due later in the day, before Friday’s closely watched nonfarm payrolls report.

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