ECB rate hikes set to slow.
In comments on Friday, Fed Governor Collins stated that the central bank needs to increase interest rates further and that rates will need to remain at a higher level for some time. She added that the recent data had increased the top of the range where rates are likely to go while also commenting that there is a risk that the Fed may go too far in raising rates.
According to Collins, all possible rate-hike increments should be on the table in December.
Atlanta Fed President Bostic stated that he was ready to move away from 75 basis-point increments at the December meeting while he expected further interest rate hikes of 75-100 basis points.
ECB President Lagarde stated that inflation is far too high and that interest rates are expected to increase further.
Council member Knot stated that the pace of rate hikes is likely to slow as policy tightens further. He added that he expected rates to reach broadly neutral territory at next month’s policy meeting, limiting pressure for further aggressive tightening.
Latest CFTC data recorded a switch to a net short, non-commercial dollar position for the first time since July 2021. The net long Euro position also increased to the highest level since March 2021, increasing the risk of Euro selling.
There were fresh concerns over Chinese coronavirus trends in Asian trading on Monday with a further increase in cases and some small-scale lockdowns which cast further doubt on the ability to ease restrictions.
Risk conditions were less confident on Monday with equities losing ground.
Overall risk conditions remained important for the dollar trends with the US currency gaining net support amid a dip in risk appetite triggered fresh US currency demand on Monday with the currency index recovering to 10-day highs.
The Euro was hampered on Friday by expectations that the pace of rate hikes will slow. The Euro was unable to gain further buying interest with EUR/USD selling near 1.0400. US yields edged higher during Friday. EUR/USD retreated to lows below 1.0320. Weaker risk conditions triggered further dollar gains on Monday with EUR/USD around 1.0280.
Higher US yields helped underpin the dollar against the yen, USD/JPY advanced to 140.35 at the US close with a limited net advance to 140.60 on Monday.
The Swiss franc resisted further selling pressure during Friday and gained support from fragile risk conditions on Monday. EUR/CHF settled below 0.9850 with USD/CHF just above 0.9550.
There was choppy Sterling trading during Friday with short covering offset by underlying concerns over UK fundamentals. Weaker risk conditions undermined Sterling on Monday. GBP/USD found selling interest above 1.1900 and retreated to 1.1825 on Monday.
Commodity currencies posted net losses as the US dollar recovered ground. AUD/USD retreated 0.6675 on Friday and edged below 0.6650 on Monday amid Chinese reservations. USD/CAD was unable to hold above the 1.3400 level, but traded just above 1.3400 on Monday with weaker equities also an element.