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Dollar bounces as weak tech earnings damp risk appetite

Published 03/02/2023, 07:50 pm
Updated 03/02/2023, 07:50 pm
© Reuters.

By Geoffrey Smith 

Investing.com -- The dollar traded higher early in Europe on Friday, after weak earnings from three of Silicon Valley's largest companies damped risk appetite more broadly.

Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Google owner Alphabet (NASDAQ:GOOGL), all saw their stocks fall after their reports for the final quarter of the year, ending a risk-on move that had started with the Federal Reserve's softer language on the inflation outlook on Wednesday.

The dollar's biggest gains in the last 24 hours have been against sterling, after the Bank of England hinted that it may have finished raising interest rates after a 50 basis points hike on Thursday. That message was more dovish message than the market had expected, and sterling is now down nearly 2% on the week against both the dollar and the euro.

The euro is better supported after European Central Bank President Christine Lagarde guided for another 50 basis point hike next month. Even so, markets appeared to take that guidance with a big pinch of salt, betting heavily that the ECB will after all be forced to lower rates as the economy stalls. 2-year German bond yields fell over 20 basis points, while 10-year Italian yields fell 33 basis points, reversing three weeks of gradual increases.

"It isn't yet carved in stone that the ECB will pause or even end its rate hiking cycle," said Deutsche Bank strategist Ulrich Stephan in a morning note. "But the financial markets are attributing a higher probability to that now than they did before the meeting."

By 03:00 ET (08:00 GMT), the Dollar Index, which tracks the greenback against a basket of advanced economy currencies, was up 0.2% at 101.745 and has now retraced all of its losses since Jerome Powell's press conference on Wednesday.

The euro, which lost over a cent during Lagarde's press conference, was down another 0.2% at $1.0886, while the pound was down 0.3% at $1.2190.

Attention is now set to switch back to the U.S., which reports its labor market data for January at 08:30 ET. The headline number for nonfarm payrolls is expected to slow for a fourth straight month to 185,000, which would be the slowest rate of job creation in nearly two years. However, analysts warn that interpreting the numbers will be made more difficult by the various changes to the data compilation that the Bureau of Labor Statistics always makes at the start of the year.

The ISM's non-manufacturing PMI and services PMIs across Europe may also garner attention, while China's Caixin Services PMI roared back to life in January as the economy reopened.

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