Dollar stems losses as investors await midterm results; cryptos jittery

SINGAPORE/HONG KONG   – The dollar steadied near its weakest in two months against the euro on Wednesday as traders waited on results from U.S. elections and on inflation data this week that will guide expectations for the interest rate outlook.

Cryptocurrencies were also top of mind for investors, as they stabilised after tumbling on Tuesday, when nerves about the stability of exchange FTX turned to a rush of withdrawals and ultimately a bailout deal from bigger rival Binance.

The euro was little changed at $1.0066, just off the $1.0096 hit overnight, its highest since Sept. 13. The dollar also weakened to 145.17 yen in Asia trade, its lowest level against the Japanese currency this month, and dropped to 0.9823 Swiss francs, its lowest in nearly five weeks.

The U.S. currency has been under downward pressure in the last week or so from bets on the Federal Reserve easing back on interest rate rises and on China easing COVID rules and driving growth.

The U.S. dollar index, which is heading for its best year in almost four decades, is down about 1% so far this week and hovered at 109.68 on Wednesday.

“We all know the dollar will probably turn at some point – when is the big question,” said Bank of Singapore currency analyst Moh Siong Sim.

“My view is the pullback is consolidation, rather than the end of the dollar uptrend, and that’s because I think the Fed is still not done with the inflation fight unless the data really gives us comfort that inflation is about to ease off for good.”

U.S. CPI data due Thursday will consequently be closely watched, especially after last week’s Federal Reserve meeting caused markets to reposition for an even higher peak in U.S. rates.

However, if this rise limits scope for further increases in rate expectations, some analysts are wondering whether even a hotter-than-expected print could send the dollar much higher.

“We wouldn’t be surprised to see U.S. dollar selling persist even if we get another upside surprise with CPI. After all, the dollar sold off last month on the back of a stronger CPI print,” said MUFG analysts.

They said one factor that could undermine the dollar was “a view that we have in fact finally reached a terminal rate that provides much less reason to believe that U.S. rates can propel the U.S. dollar further higher from here.”

Sterling held at $1.1540, while the Australian dollar and New Zealand dollar overnight also climbed to multi week tops against the U.S. dollar before edging off those levels during the Asia session.

Early U.S. midterm-election results showed an uncertain picture with Republicans still favoured to win a majority in the House of Representatives though the Senate remained a toss up.

Results could take days to emerge, and what they mean for currency markets is uncertain, though divided government has in the past caused equities to rally, which could weigh further on the dollar.

Cryptocurrency markets have had a wild few days, and were attempting to find a floor on Wednesday after crypto exchange Binance announced plans to buy rival FTX in a bailout. A surge in withdrawals had left FTX struggling.

FTX’s native token was in freefall on Tuesday and bitcoin fell to a two year low of $17,1141.

Bitcoin on Wednesday steadied just above $18,000, but FTT fell a further 20 percent.