Super dollar climbed due to lower risk tolerance amid aggressive tone from central banks

S&P Global reported Friday that its United States PMI Composite Production Index, which analyzes the manufacturing and service sectors, it dipped to 44.6 this month from a final reading of 46.4 in November. This is the sixth consecutive month in which the index has remained below 50, which indicates contraction in the private sector.

“A weaker-than-expected interim PMI won’t stop the Fed from raising rates” said Erik Bregar, director of currency and precious metals risk management, at Silver Gold Bull in Toronto.

“We’ve had an aggressive week with the Federal Reserve and the ECB (European Central Bank) and there’s a lot of red on the screens, so I think we’re seeing the dollar trade here through the close,” Bregar added.

In afternoon trading, the greenback lost 0.9% against the yen to 136.56 units, after hitting two-week highs in the previous session.

However, sterling was down 0.1% against the dollar at 1.2165, with the euro down 0.3% at $1.0597.

New York Federal Reserve Chairman John Williams ratcheted up the hawkish rhetoric, saying it’s still possible the bank could raise rates more than it currently expects next year. The Fed has projected the top federal funds rate at 5.1%.

But financial markets do not seem to believe the position of the US central bank. “Few expect the Federal Reserve to follow through on its speech on Wednesday,” Corpay’s chief market strategist in Toronto.

The dollar index which compares the US currency against a basket of six major currencies, It was up 0.2% at 104.69, after rising more than 0.9% on Thursday.

The risk-sensitive Australian dollar fell 0.2% to 0.6690. The Australian currency plunged 2.38% in the previous session, its biggest drop since March 2020. The New Zealand dollar, on the other hand, rose 0.7% to 0.6383.