US dollar gains against nearly all its major peers as trading kicked off in 2023.
After a seasonal Christmas pause, trading resumed in 2023 with the US dollar rising versus almost all of its main competitor.
The Norwegian krone, the euro, and the Swiss franc all experienced significant declines versus the US dollar, leaving only the Japanese yen to gain against it.
The Bloomberg Dollar Spot Index increased as much as 0.9% as a result, setting it up for its strongest day since mid-December.
Dollar starts year with gains.
Traders claimed that the fluctuations were made worse by the lack of liquidity. However, it served as a warning that the recent decrease in the value of the dollar, which is widely anticipated to continue this year, will not be a one-way movement.
Geoff Yu, senior currency strategist at Bank of New York Mellon, stated that the US dollar ended the year a little overdone from a rebalancing standpoint.
“A little recovery flow occurring practically by default,” according to that, implies.
After a solid start earlier in the year, traders reduced their long dollar holdings, causing the Bloomberg dollar index to decline by approximately 8% from late September through the end of the year. This caused the dollar to have its worst quarterly performance in more than a decade.
However, Yu is “very doubtful” that the Federal Reserve can lower interest rates this year, which might help mitigate a longer-term decline, even though he predicts more deterioration.
This week, traders will search fresh data for hints about the US economy.
Last year, there were growing indications that a strong cycle of rate increases was beginning to cool the soaring inflation, though wage growth is still solid, indicating higher rates for longer.
The currency that decreased 2.2% the most versus the US dollar was the Norwegian krone.
More than 1% was lost by the Swiss franc and euro. The yen defied trend and rose, reflecting speculations on a tighter monetary policy from the Bank of Japan following its unexpected decision to change its yield curve control settings in December.
At the start of 2023, “long JPY remains a preferred trade,” according to Antony Foster, head of G10 spot trading at Nomura International in EMEA.
The biggest traders are speculative and model accounts, but the beginning of the year is frequently characterized by erratic movements.
After earlier rising over 1% to its highest level since early June, the yen gained 0.1% to 130.7.
According to Ian Tew, head of G-10 currency spot trading for EMEA at Barclays, currency movements have doubled since the London open despite the fact that Japanese financial markets are still closed for the New Year’s holiday.
Today feels more like a wind-down of short-term December holdings than anything fundamental to start the year, Tew said. “We’re looking at an uncertain 2023 and numerous macro factors will determine market narratives,” Tew said.
Although yen calls have dominated the option market, there has also been dollar demand from hedge funds.
