Title: Dollar Softens as Bitcoin Gains Momentum on ETF Speculation
Date: October 24, 2022
By: Brigid Riley
Tokyo – The dollar retreated against a basket of currencies on Tuesday, echoing a decline in Treasuries yields as investors awaited crucial U.S. economic data ahead of the Federal Reserve’s upcoming monetary policy meeting.
Bitcoin surged back into the market spotlight amid speculation that the United States might soon approve a bitcoin exchange-traded fund (ETF).
The dollar index stands at approximately 105.47, having lost over 0.5% in the previous session and hitting its lowest level in about a month as U.S. Treasury yields faltered.
Last week, the greenback found support after Fed Chair Jerome Powell indicated that the strength of the U.S. economy might warrant tighter financial conditions. This pushed the benchmark 10-year yield above 5%, its highest since July 2007.
The significant swing in yields comes as global uncertainty and growing geopolitical risks have placed markets on edge, with tensions escalating in the Middle East following Hamas’ attack on southern Israel on October 7.
Attention now shifts to the remaining U.S. economic data before the Fed’s meeting on October 31 to November 1. The flash purchasing managers’ index (PMI) is due on Tuesday, followed by gross domestic product (GDP) and another inflation report later in the week.
Matt Simpson, senior market analyst at City Index, noted that the PMI data could set market expectations ahead of the GDP report.
“If the data leans far enough one way, it could prompt a strong dollar rally or breakdown, with the Fed in a blackout period,” he said, referring to the period before the policy meeting in which there are restrictions on public communications from central bank officials.
The Federal Reserve is expected to keep rates unchanged at its meeting next week.
Meanwhile, the European Central Bank (ECB) is also anticipated to leave interest rates untouched at its meeting on Thursday, following a 25 basis points hike in September.
The euro extended its gains after reaching a one-month high against the greenback on Monday, trading around $1.0682.
The dollar’s retreat provided some relief to the battered yen, with the Japanese currency hovering near 149.65 after breaching the sensitive level of 150 both on Friday and Monday.
Traders consider the 150 threshold as a potential trigger for Japanese authorities to intervene in the currency market.
However, if U.S. data this week proves strong, it could push the yen back into the danger zone.
“The yen will be particularly sensitive to hot U.S. data, especially if it causes Treasuries to blow through what’s looking like a key resistance level of 5% or so,” said Kyle Rodda, senior financial market analyst at Capital.com.
Market participants will also pay close attention to the Bank of Japan’s policy decision on October 31. The surge in global interest rates has sparked discussions about a possible adjustment to the central bank’s bond yield control policy.
Notably, a survey released on Tuesday indicated that Japan’s factory activity contracted for the fifth consecutive month in October, while the service sector recorded its weakest growth this year.
In the world of cryptocurrencies, bitcoin continued its ascent in Asian trading hours, reaching $35,198, its highest level since May 2022, fueled by speculation of an imminent approval of a bitcoin exchange-traded fund.
Reporting by Brigid Riley
Editing by Sam Holmes & Shri Navaratnam
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