Dollar stays firm on strong services data

06 Dec 2022

Tuesday saw the Dollar index remain firm following its largest rally in a fortnight after robust U.S. services data fuelled forecasts of higher rates than initially forecast.

The Dollar index – measuring the greenback against six major rivals – stood at 105.24 at the time of writing, following the 0.7% rally on Monday, the largest since 21st November.

The index fell to 104.1 on Monday for the first time since late June. It later changed direction on the industry activity rally last month, leading to an employment rebound, Reuters reports.

“The longer the U.S. economy is robust, the more doubts are probably going to increase as to whether the U.S. will actually face a recession next year and whether the U.S. central bank will actually cut its key rate at that stage,” said FX Analyst at Commerzbank, You-Na Park-Heger.

The Federal Open Market Committee will make a policy decision on 15th December. As it stands, traders forecast a 50 basis-point increase to a policy range of between 4.25% and 4.5% and a terminal rate in May of just over 5%.

In addition, industrial orders in Germany recovered more than forecast in October. However, the Euro remained flat on Tuesday at $1.0500 after hitting a six-month high on Monday.

Furthermore, the Western price cap on Russian seaborne crude could soon impact the energy market, according to ING FX Strategist Francesco Pesole. “When adding an expected drop in temperatures in Europe from this week, the risks of a new rally in energy prices are non-negligible, and the Euro is highly exposed to such risks,” he stated.

Elsewhere, the Australian Dollar edged up 0.3% to $0.6718, following a 1.4% decline on Monday as the central bank said it was not on a pre-set path to tighten monetary policy, but inflation was still red-hot.

“Whilst the RBA (Reserve Bank of Australia) have spoken of a pause publicly, we may not be as close to one as I originally thought,” said Matt Simpson, a senior analyst at brokerage City Index in Brisbane.