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Fed rate hopes weigh on dollar, stocks fall ahead of US jobs data

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US jobs data Friday will be closely watched for an insight into the state of the economy./AFP
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Dec 02, 2022 - 07:52 AM

HONG KONG, CHINA — The dollar struggled to recover Friday from its recent sell-off as traders grew confident the Federal Reserve will slow its pace of interest rate hikes, while a recent equities rally sputtered as focus turns to key US jobs data.

Another positive inflation data release out of the United States added to expectations that the US central bank will take a lighter approach to lifting borrowing costs at its December meeting.

The personal consumption expenditures price index data came a day after Fed boss Jerome Powell indicated that the days of 75 percentage-point rate increases were gone as officials pore over the impact of tightening on the economy.

A report showing factory activity shrinking in November added to the sense that the Fed moves were kicking in.

The developments gave forex traders another reason to shift out of the dollar, pushing it down against its major peers — having surged this year on the back of hawkish Fed policy.

The greenback was under particular pressure from the yen Thursday, having hit a three-decade high in October, while sterling and the yuan were also well up from the record lows touched recently.

The US unit was unable to break higher on Friday.

However, several Fed officials including Powell have lined up to warn that rates will continue to rise and stay elevated, with the possibility of no cut until 2024.

While the mood on trading floors has become much lighter, equity investors took a step back from their latest buying spree as they awaited the release of the closely watched non-farm payrolls report later Friday.

The figures will provide the most recent snapshot of how the world’s top economy is faring in light of the higher rates and four-decade-high inflation.

“Stocks are grinding a touch lower in Asia after a directionless US session, which sees local traders book some profits ahead of the non-farm payroll report,” said SPI Asset Management’s Stephen Innes.

“A strong report could still reinforce the Fed’s hawkish ambitions. So traders are jockeying for position ahead of the moderately high-risk event.”

Hong Kong, Shanghai, Tokyo, Sydney, Seoul, Mumbai, Bangkok, Singapore, Taipei, Wellington, Manila and Jakarta all fell.

Investors were following developments in China amid signs it is edging towards a pivot from its draconian Covid-zero strategy, which has seen the lockdown of tens of millions and strangled the giant economy this year.

The move came after widespread protests across the country earlier in the week against almost three years of heavy-handed containment measures and calls for more political freedoms, which have rattled the leadership of Xi Jinping.

Observers say they expect officials to signal a shift in priorities at a key meeting later this month, with a focus turning to kickstarting the economy, though with vaccination rates low the move will likely be gradual.

“The language (at the meeting) will prioritise economic growth more than it did the last couple of years,” Arthur Budaghyan, at BCA Research Inc, said.

“Economic conditions are worsening, and policymakers’ pain point is being reached.”

Key figures around 0710 GMT 

Tokyo – Nikkei 225: DOWN 1.6 percent at 27,777.90 (close)

Hong Kong – Hang Seng Index: DOWN 0.3 percent at 18,673.57

Shanghai – Composite: DOWN 0.3 percent at 3,156.14 (close)

Euro/dollar: DOWN at $1.0526 from $1.0529 on Thursday

Dollar/yen: DOWN at 135.11 yen from 135.34 yen

Pound/dollar: DOWN at $1.2237 from $1.2251

Euro/pound: UP at 86.00 pence from 85.91 pence

West Texas Intermediate: DOWN 0.1 percent at $81.18 per barrel

Brent North Sea crude: UP 0.2 percent at $87.06 per barrel

New York – Dow: DOWN 0.6 percent at 34,395.01 (close)

London – FTSE 100: DOWN 0.2 percent at 7,558.49 (close)

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