Home ForexArticles Dollar steady at 5-week high as Fed rate cut bets moderate By Reuters

Dollar steady at 5-week high as Fed rate cut bets moderate By Reuters

by SuperiorInvest

© Reuters. FILE PHOTO: U.S. dollar bills are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Samuel Indyk and Kevin Buckland

LONDON (Reuters) – The dollar hovered near a five-week high against its major peers on Thursday after strong U.S. retail sales data raised expectations that the Federal Reserve will not rush to lower interest rates. interest.

The , which measures the currency against a basket of six rivals, was steady at 103.33 in European morning trading, after hitting 103.69 on Wednesday for the first time since Dec. 13.

Traders have reduced the odds of a first Fed rate cut in March to 61%, from 65% on Tuesday, according to CME’s FedWatch tool.

The market is still pricing in about 145 basis points of cuts by the end of the year, even as Fed officials, including Governor Christopher Waller, this week rejected expectations of a quick policy easing.

“The US data has been mixed, but yesterday we received a very strong retail sales report that indicates there is no need to be too aggressive on rate cuts,” said Niels Christensen, chief analyst at Nordea.

“Lower rate cut expectations and risk-off sentiment are positive for the dollar,” Christensen added.

The dollar hit 148.525 yen on Wednesday for the first time since late November.

It last traded 0.2% lower on the day at 147.778 yen. However, at the end of last week it was as weak as 144.35 yen.

Investors have been steadily discounting the Bank of Japan’s aggressive bets, especially given the devastating New Year’s Day earthquake in central Japan. The BOJ will meet on monetary policy on Monday and Tuesday next week.

“I think the dollar-yen is going to float between 145 and even 150 in the short term,” a level last seen in mid-November, said Shoki Omori, chief strategist at the Japan office of Mizuho Securities.

If the BOJ maintains its dovish message next week, and if Fed Chair Jerome Powell takes a similar stance to Waller at the U.S. central bank’s Jan. 30-31 policy meeting , the dollar could surpass 150 yen in early February. Omori said.

“Japanese officials could begin to intervene verbally at any time” to try to stem the fall of the yen, he added.

The euro was stable at $1.0881. It had bounced from a five-week low of $1.08445 on Wednesday, supported by ECB President Christine Lagarde’s comments to Bloomberg that there would likely be majority support among ECB officials for an interest rate cut. in the summer, later than market expectations of a spring cut. .

Sterling rose 0.1% to $1.26889, extending gains following a rally on Wednesday after data showed inflation unexpectedly accelerated in December, reinforcing expectations that the Bank of England will take longer than their peers to cut rates.

The British currency’s 0.3% jump on Wednesday snapped a three-day slide against the dollar and capped Wednesday’s gains for the euro, of which sterling is a part.

The Australian dollar was little changed at $0.6555, after recovering from losses as steep as 0.4% to $0.65255 earlier, when data showed an unexpected drop in employment in December, adding to the fact that rates have peaked in the country.

“There is clearly some technical support around $0.6520 that the bears are hesitant to sell above,” said Matt Simpson, senior market analyst at City Index.

“However, the jobs report does not provide any meaningful reason to hold long AUD positions,” he added. “And that means its next directional move remains in the hands of the Fed’s expectations and therefore the US dollar.”

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