Title: Dollar weakens for a 4th day on U.S. rate view

Jan 14, 2022 07:02AM ET

By: AnalysisWatch

The US dollar fell for a fourth straight day on Friday, hitting its lowest level in more than two months as investors felt that most of the Federal Reserve's recent aggressive stance was already priced in.

On Friday, the dollar fell 0.2% against a basket of currencies to 94.62, its lowest level since early November. On a weekly basis, it is expected to weaken by 1.11%, its biggest decline since December 2020. On Thursday, it fell below its 100-day moving average for the first time since June 2021.

Inflation-adjusted US 10-year yields have risen 40 basis points since the start of the year, threatening to undermine the equity market rally and weigh on the economic outlook.

With hedge funds' dollar positioning approaching its highest level since the early 2020s and final US interest rates pointing to a peak of less than 2%, well below the highs of previous Federal Reserve rate cycles, investors have been reluctant to add to their long positions.

HSBC strategists said markets were increasingly concerned about the impact of the Fed's intentions on economic growth, from the downsizing and reduction of the central bank's balance sheet to the likely higher interest rates.

While the yen, considered a safe haven, benefited from weakness in global equity markets, a Reuters report that the Bank of Japan is considering how to announce a possible interest rate hike led to a fall in the Australian dollar and US government bond yields, which also weighed on the dollar.

The dollar's sluggishness worsened this week, even though US interest rate futures are already predicting four rate hikes this year.