The US dollar on Monday traded near seven-month lows against other major currencies after data suggested the Federal Reserve may slow the pace of its rate hikes, while China reopening its borders boosted the riskier currency.
The Chinese Yuan currency is approaching its highest level in five months against the U.S. dollar, while the Australian and New Zealand dollars, which are generally considered a proxy for the Chinese currency, jumped sharply.
The US dollar posted its biggest quarterly loss in 12 years in the last three months of 2022, driven mainly by investors' belief that the Fed will not raise rates above 5%, from its current range of 4.25%-4.50%, due to good inflation and growth.
Two separate reports on Friday showed that the economy is growing and adding jobs, but overall activity is trending towards a recession, prompting traders to sell the US dollar against various currencies.
The monthly jobs report on Friday showed an increase in the number of workers in the NFP reading, and slower wage growth. A separate report from the Institute for Supply Management showed activity in the services sector contracted for the first time in 2-1/2 years in December. The ISM non-manufacturing PMI reached a reading of 49.6, the weakest since 2009, excluding the fall during the Covid-19 outbreak in 2020.
The December CPI reading that will be released this week is expected to be the next step among market players. The Fed raised interest rates by 50 basis points last month after raising 75 basis points consecutively last year. At the same time stated that they are likely to keep interest rates higher for longer to tame inflation.
The US dollar index which measures the US dollar against six major currencies was down 0.2% at 103.54, after falling 1.15% on Friday as investors turned to riskier assets. Sterling strengthened 0.42% to $1.2144, pushing on Friday's 1.5% gain. The euro strengthened 0.4% to $1.0687, adding to Friday's 1.17% gain.
Meanwhile, China continues to reopen its doors. Optimism about a rapid economic recovery caused China's yuan to strengthen to a 5-month high against the US dollar.
