FOREX-Dollar slips to 5-month low, yuan set for biggest weekly gain since 2005

Reuters

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    By Samuel Indyk
       LONDON, Dec 2 (Reuters) - The dollar was pinned near a
five-month low against a basket of major currencies on Friday
ahead of key U.S. labour market data, while the yuan was set for
its biggest weekly gain since China abandoned its dollar peg and
revalued its currency in 2005. 
    The dollar index  =USD , which measures the currency against
six major peers including the yen and euro, fell 0.2% to 104.47,
having earlier touched its lowest level since June 29 at 104.36.
    The index slipped over 5% last month on expectations that
the Federal Reserve would start to slow its pace of rate hikes
from the December meeting.    
    Data released on Thursday supported that view, with the core
personal consumption expenditures (PCE) price index coming in
below expectations. The Fed tracks the PCE price indexes for its
2% inflation target.
    Fed chair Jerome Powell said on Wednesday that it was time
to slow rate hikes, noting that "slowing down at this point is a
good way to balance the risks." 
    "Over the past few days there was sufficient cause for
pricing out dollar strength because not just Powell's overall
dovish speech, but also yesterday's US data hit the same
deflation spot," Commerzbank analysts said in a note. 
    Investors are now turning their attention to nonfarm
payrolls data on Friday for clues on how rate hikes have
affected the labour market.
    "Markets are really buying into the pivot story from the
Fed," said ING FX strategist Francesco Pesole, who noted
sentiment is bearish on the dollar. 
    "Considering what's come from the inflation side, we'll need
to see strong payrolls numbers for the dollar to rebound,"
Pesole added. 
    The prospect of the Fed slowing its pace of monetary
tightening has rejuvenated investor sentiment and sent the
dollar tumbling after four straight 75-basis-point (bps) hikes
that fuelled much of the greenback's ascent this year. 
    Futures traders are pricing for the Fed's benchmark rate to
peak at around 4.8% in May, compared to a top of over 5% before
Powell's comments on Wednesday, according to data from
Refinitiv. 
    Meanwhile, China's yuan  CNY=CFXS  rose 0.5% against the
dollar to 7.0235.
    The yuan gained 1.9% on the week and was set for its biggest
weekly gain since China abandoned its peg to the U.S. dollar and
revalued the currency in 2005, according to Refinitiv data,
buoyed by expectations of an exit from China's zero-COVID policy
and a slower pace of interest rate hikes from the Fed. 
    The dollar was 0.9% lower at 134.09 yen  JPY=EBS , having
earlier slipped to its lowest level since Aug. 16 at 133.62.
    The euro  EUR=EBS  was little changed at $1.0532, after
gaining 1.1% on Thursday.
    European Central Bank President Christine Lagarde warned on
Friday that some European governments' fiscal policies could
lead to excess demand, and that fiscal and monetary policies
need to work in synch for sustainable, balanced economic growth.
    Sterling  GBP=D3  was last trading at $1.2260, down 0.1% on
the day. The pound advanced 1.7% on Thursday, touching a 5-month
high of $1.2311.
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World FX rates    https://tmsnrt.rs/2RBWI5E
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 (Reporting by Samuel Indyk in London, Ankur Banerjee in
Singapore; Editing by Raju Gopalakrishnan, Kim Coghill and Simon
Cameron-Moore, William Maclean)
 ((ankur.banerjee@thomsonreuters.com;; Mobile - +65 9121 9485;
Twitter: @AnkurBanerjee17;))

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