Forex Today: Dollar dips amid further profit-taking, lira beating continues

What you need to know on Friday, November 19:

The Dollar Index’s pullback from the 16-month highs it printed earlier in the week continued on Thursday, with the index dropping back to the 95.50s ahead of the start of the Asia Pacific trading session. Further strong US data in the form of weekly initial jobless claims falling to a new post-pandemic low at 269K and a much larger than expected jump in the November Philly Fed Manufacturing index failed to ignite further dollar bullishness.

Traders cited profit-taking following the dollar’s recent impressive run higher as the main driver of the pullback. Indeed, while the DXY is set to end Thursday’s session 0.3% lower, it still trades more than 1.5% above its levels prior to the release of the much hotter than expected US inflation report last week. Further weakness in US bond yields also didn’t help, with the 10-year dropping under 1.59%. Some analysts expect the dollar to consolidate from here, if not continue to trade with a somewhat positive bias, as it awaits further fundamental catalysts.

Rhetoric from Fed policymakers broadly failed to spur the action, but for reference, NY Fed President John Williams noted broader-based increases in inflation and Chicago Fed President Charles Evans acknowledged that he was open to monetary tightening in 2022. The eurodollar futures curve (a proxy for Fed interest rate expectations) was broadly unchanged, with the December 2022 future still pricing about 70bps worth of tightening.

The oversold euro took advantage of the weaker dollar, with EUR/USD rallying nearly 0.5% to 1.1370. But it was the kiwi that was the best performing G10 currency, with NZD/USD posting a 0.6% gain to move towards 0.7050 after an RBNZ survey showed inflation expectations in New Zealand rising to 11-year highs in Q4. 19 out of 20 economists surveyed in a Reuters poll expect the bank to hike interest rates by 25bps to 0.75% next Wednesday, while one expected a 50bps hike to 1.00%.

Elsewhere in G10 FX markets, EUR/CHF printed its lowest level since 2015 on Thursday, dipping very briefly below the 1.0500 level that has in the past been vehemently defended by the SNB. Against the dollar, CHF strengthened by 0.3% on Thursday, also taking advantage of buck weakness. AUD/USD gained 0.2% and currently trades around 0.7275. GBP/USD gained 0.1% and continues to struggle to get above 1.3500 ahead of Friday’s UK October Retail Sales report. USD/JPY was a little stronger, having bounced at the 114.00 level, meaning the yen was the worst-performing G10 currency of the day.

Elsewhere, it was a poor day for major EM currencies. The lira led the declines, with USD/TRY surging another 3.5% on Thursday after the CBRT went ahead with a widely expected, but widely derided, 100bps rate cut, taking rates to 15.0% despite CPI nearing 20% in October. The rouble and South African rand both lost north of 1.0% amid unsurprising broader EM currency jitters, with ZAR failing to benefit after the SARB surprised markets with a 25bps rate hike to take its benchmark rate to 3.75%.

On Friday, the UK and Canada release October Retail Sales numbers, ECB President Christine Lagarde is scheduled to speak twice and Fed Governor Christopher Waller and Vice President Richard Clarida are slated to speak.