The dollar continued to weaken on Friday, but remained in a strong position against most of the world's major currencies, to the point of encouraging central banks to be cautious in the face of the tightening of the American Federal Reserve (Fed). Around 8:20 p.m. GMT, the Dollar Index, which compares the greenback to a basket of six currencies, was almost stable (+0.05%), at 106.725. “We have a small consolidation on the dollar, which is technical, but also linked to a disappointment in retail sales” in the United States, described Elias Haddad of Brown Brothers Harriman.
Retail sales increased by 0.4% over one month in October, better than the 0.3% predicted by economists. But the basic index (control group), which notably excludes automobiles, gasoline and construction materials, fell by 0.1%, against an expected increase of 0.3%. “These data interrupt an acceleration that began in May”noted the economists from High Frequency Economics, for whom “the Fed will take note.” The dollar was also penalized by a slight decline in bond rates. The 2-year yield fell to 4.29%, compared to 4.34% the day before at the close. However, “the upward trend of the dollar remains intact”tempered Elis Haddad.
Foreign currencies penalized
For Wells Fargo analysts, the currencies of emerging countries are particularly poorly positioned in the face of «greenback»one of the nicknames for the dollar. “The strength of the dollar and a recalibration of expectations for Fed rate cuts place emerging country central banks in a delicate situation”they estimate. They therefore expect the Turkish TCMB, the South African SARB and the Hungarian MNB to adopt a “more cautious approach to monetary easing”.
The gap between American rates and those of other countries penalizes foreign currencies against the dollar. On Thursday, the Uruguayan central bank left its key rate unchanged, despite the continued deceleration of prices, indicating in particular “taking into account the change in the global scenario and its future impact on domestic inflation”. The prospect of new customs duties imposed by the future government of Donald Trump would stimulate inflation globally, it is generally agreed. Emerging countries “lower their rates and their currency weakens”constate Marc Chandler, de Bannockburn Global Forex, “so it’s a little stressful.” “I don’t think it pushes them to stop”continues the analyst, “but this could weigh on the extent of the easing.”
