(Bloomberg) -- The dollar resumed declines on Monday in New York amid a rebound in US equities and other risk assets ahead of fresh inflation data and the results of mid-terms elections this week, which hurt demand for the safety of the greenback.
A Bloomberg gauge of the US currency fell 0.3% by 9:30 a.m. in New York after rising as much as 0.5% earlier. Most emerging-market currencies were up on the day, while the pound, Swiss franc and euro were among the biggest gainers among Group-of-10 currencies. US stock futures rose, while Treasuries were caught between optimism for a moderation in inflation and a near-term impact from a pickup in corporate issuance.
US data Friday showed strong hiring and wage increases in a mixed picture for Federal Reserve officials debating how long to extend their campaign to curb elevated inflation. Still, Goldman Sachs Group Inc.'s top economist Jan Hatzius said on Monday that there's still a "very plausible" path for the US economy to avoid a recession despite the Fed's aggressive tightening and geopolitical uncertainties.
Read more: Goldman Sachs Sees 'Very Plausible' Path to Avoid US Recession
Risk assets remained bid on Monday even as China reiterated its commitment to Covid-Zero on Saturday. Speculation the Asian country was edging away from the policy catapulted risk appetite on Friday, leading the dollar through its worst one-day slump since March 2020. In addition to the results of US mid-term elections, attention is also turning to US consumer price data on Thursday.
"China has been unambiguous over the weekend that easing lockdowns is not happening and a strong labor market only gives a green light to the Fed to hike further," said Tim Baker, head of macro research at Deutsche Bank AG in Sydney. A strong inflation print "could lift the December Fed pricing a bit closer to 75 basis points, which would help the dollar and hurt equities and bonds."
Peak Dollar
Debate is heating up whether the dollar is near its peak after the Fed's latest rate hike, with its fortunes hanging in the balance as traders parse economic data to get a better grip on the outlook on US policy. Some investors such as M&G Investments are turning more cautious about the Fed's tightening path and reducing long bets on the greenback.
TD Securities said upward pressure on the dollar may start to ease as its sensitivity to interest-rate hikes reduces, though others including Commonwealth Bank of Australia Ltd. reckon investors shouldn't write off the dollar's strength just yet.
"A higher peak Funds rate can further widen US-major trading partner interest rate differentials and will support the dollar," CBA strategists including Carol Kong wrote in a note.
--With assistance from Ruth Carson and Matthew Burgess.
(Updates dollar's move in first three paragraphs.)
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