SINGAPORE The US dollar sank around its seven-month lows on Friday as fears of an economic slowdown hurt risk appetite while the yen eased even as speculation swirled that the Bank of Japan BOJ will move away from its ultra-easy policy.
The dollar index, which measures the U.S. currency against six peers, went up 0.098 per cent to 102.12, not far off the seven-month low of 101.51 it touched on Wednesday.
The index is down 1.3 per cent this year after sinking 7.7 per cent in the last three months of 2022, as investors bet that the Federal ReserveFederal Reserve will slow the pace of its interest rate rises.
The Japanese yen weakened by 0.64 per cent against the dollar to 129.26, with the Asian currency favoured as a safe-haven and funding currency in the midst of a volatile few weeks. The Yen has rallied 14 per cent in the past three months because of expectations that the BOJ will end its yield control policy.
In December, Japan's core consumer prices rose by 4.0 per cent from a year earlier, double the central bank's 2 per cent target, with the latest figure unlikely to sabotage market expectations of a change in policy by the central bank, according to data released on Friday.
Carol Kong, currency strategist at Commonwealth Bank of Australia, said that the BOJ is going to leave yield curve control and negative interest rate policy by the end of June, conditional on a solid pick-up in Japan's wage growth.
The BOJ has maintained its ultra-loose monetary policy and defied market expectations on Wednesday.
Kong said that currency market moves would depend on risk sentiment, with major currencies likely to trade in narrow ranges, with little economic data scheduled on Friday.
A flurry of U.S. data showed that the world's biggest economy is slowing down after several hefty interest rate increases by the Federal ReserveFederal Reserve and traders hope for a pause in tightening this year.
The number of Americans filing new unemployment benefits unexpectedly fell last week, pointing to another month of solid job growth and continued labour market tightness.
Christopher Wong, a currency strategist at OCBC in Singapore, said the slowdown in activity momentum reinforced growth concerns led by developed markets, including the United States.
With China reopening you may get this goldilocks scenario where inflationary pressures are falling, rate hikes are slowing and growth not necessarily tanking, but growth may not be as bad as feared. The investor focus will shift to the Fed meeting at the beginning of next month. The market is eagerly anticipating another stepdown after the central bank raised interest rates by 50 basis points in December after four straight 75 basis point increases in December.
The dollar is vulnerable to data releases due to markets scaling back Fed rate expectations because of the intense scrutiny of U.S. growth, according to ING economists.
The negative implications for the dollar have been exacerbated by the ongoing dovish repricing, which is not only a result of slowing inflation but also worsening the economic outlook in the United States, according to ING economists.
The euro was flat, while the sterling was trading at $1.2372, down 0.14 per cent on the day. The Australian dollar rose by 0.17 per cent against the U.S. currency to $0.692. The kiwi rose by 0.25 per cent to $0.641.