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U.S. dollar rallied Wednesday. What about other currencies?

The U.S. dollar recovered some of its losses on Wednesday as investors returned to safe-haven currencies. U.S. stocks also tumbled down. In the F.X. market, the euro and British Pound each lost more than 1%.

Market participants expect the U.S. Federal Reserve to hike its interest rates by less than previously forecasted. Such sentiment bolstered the greenback while causing the other currencies’ downfall. Marc Chandler, the chief market strategist at Bannockburn Global Forex in New York, stated that the markets were in a riskier mood. As a result, the euro and Pound were soaring, and the stock market rallied. However, he thinks that investors were just exploring a trading range.

It’s obvious now that the surge in risk assets is not happening because the Fed has changed its perspective. However, traders are waiting for the U.S. jobs data, which is due on Friday. It may offer some clues on the possible trajectory of the agency’s monetary policy.

San Francisco Fed President Mary Daly declared that the officials were worried about the impact of the rapidly increasing USD on other currencies and economies. On the other hand, U.S. Fed Governor Philip Jefferson stated that inflation remained the top target for the agency. Thus, growth might suffer in efforts to bring it down.

How are the Euro and British Pound trading today? 

The common currency plummeted by 1.4% at $0.9852 on Wednesday after skyrocketing by 1.7% in the previous session. The sterling also shaved off 1.8%, exchanging hands at $1.1268. The currency had been rallying for six consecutive sessions after U.K. Prime Minister Liz Truss promised to bring down debt as a share of national income. Initially, the government planned to cut taxes and ramp up borrowing, but it changed plans due to the market’s negative reaction.

According to new data, Britain’s private-sector economy experienced the sharpest contraction in activity last month since a coronavirus lockdown early last year. That news weighed on the Pound, causing its decline.  

In Asia, the Japanese dollar fell, with the greenback gaining 0.4% versus the yen on Wednesday. Moreover, the New Zealand dollar tumbled down by 1% to $0.5676. The kiwi surged forward by as much as 1.3% earlier in the session. But the Reserve Bank of New Zealand (RBNZ) hiked the rates by 50-basis-point for the fifth consecutive time. Inflation is still the main focus of central banks, and investors prefer to remain cautious. The Aussie dollar also dropped by 1%. It exchanged hands at $0.6436 at last.

Latin American currencies declined, as well. Why’s that? 

On Wednesday, Latin American currencies and stocks ended in the red. The greenback’s rally pushed riskier currencies lower. The latter rallied during the last three consecutive sessions as weak U.S. economic data bolstered investors’ hopes that central banks might take a less hawkish approach. However, those hopes diminished after New Zealand’s central bank delivered another large interest-rate hike today. 

Christian Lawrence, the senior cross-asset strategist at Rabobank, noted that the last surge in equities seemed a little bit overdone. According to him, a lot depends on Friday’s U.S. non-farm payrolls report. If it comes out very weak, the dollar may decline again.

Meanwhile, EM currencies shaved off approximately 1%. The Brazilian real tumbled down by 1.2%. It continued trading in the red for the second straight session after new data showed the country’s industrial output dropped by 0.6% in August compared to the previous month. Brazil is preparing for the second round of voting later in October. Former President Luiz Inacio Lula da Silva couldn’t gain enough votes needed for an outright win against far-right President Jair Bolsonaro.

Moreover, Mexico’s peso plummeted by 0.9% today. Colombia’s peso also fell by 1.2%, while Chile’s peso lost 1.5% due to a decline in copper prices. On Wednesday, the government’s DANE statistics agency reported that Colombia’s consumer prices jumped by 0.93% this month. But that news wasn’t enough to boost the currency.

The Polish zloty decreased by 0.4% during this session after Poland’s central bank kept its main interest rate steady at 6.75%. Investors didn’t expect this move. Lawrence stated that the Russia-Ukraine conflict has escalated over the coming months. The war caused traders to be more cautious when it came to the CEE region. Still, the Romanian leu climbed up by 0.1% versus the common currency on Wednesday. 

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