Home Forex Fed's Waller Boosts Dollar, Yen Intervention Warnings Intensify

Fed's Waller Boosts Dollar, Yen Intervention Warnings Intensify

by SuperiorInvest
  • Fed Governor Waller says there is no rush to lower rates
  • The probability of a rate cut in June decreases, but the dollar gains
  • Yen recovers after strong intervention warnings
  • Wall Street and gold are traded in the north

Dollar rises as Waller shows signs of patience
The US dollar ended Wednesday slightly higher against all but one of its major peers and continues to trade ahead on Thursday as well. The only currency against which it lost ground yesterday was the Japanese yen.

The dollar started the day on a relatively calm note, but comments from Federal Reserve Governor Christopher Waller after the Wall Street close added some fuel to the currency's engines. Waller said the recent disappointment over inflation numbers confirms that the Federal Reserve should wait a while before hitting the rate cut button.

Waller's comments appear contradictory to Powell's view at last week's post-decision news conference, where he said recent high inflation readings had not changed the narrative of a slow easing of price pressures and , therefore, are not a reason to alter the Committee's plans.

Since Waller was the first among Fed policymakers to talk about rate cuts, investors took his words to heart and raised their implied course a bit. According to Federal Reserve funds futures, the probability of a cut in June fell to around 68%, while the total number of basis points of rate reductions by the end of the year fell to 75, once again coinciding with the Federal Reserve's own projections.

The next big test for Fed expectations and the US dollar may be tomorrow's core PCE index, which is the Fed's favorite indicator. Although Powell has already mentioned that the tightness of recent inflation data is not a reason for the Federal Reserve to pause its action, Waller's opinion adds additional importance to tomorrow's data.

Another round of data pointing to tougher inflation than previously expected could further weigh on the likelihood of a rate cut in June and thus further support the dollar.

Japanese authorities ready to intervene
The yen was the only major currency against which the dollar lost ground yesterday, with the once-safe haven gaining ground after Japan's three main monetary authorities (the Bank of Japan, the Ministry of Finance and the Financial Services Agency of Japan) held a meeting late in Tokyo business hours. to discuss the fall of the yen and suggested that they were willing to intervene in the market to stop speculative movements.

The dollar/yen was trading on a consolidated basis slightly below 152.00 before the meeting and the announcement brought the price down to 151.00. Although the pair recovered slightly later, today it was not affected by the Bank of Japan's summary of views, which confirmed that at last week's meeting, policymakers highlighted the need to proceed slowly and gradually to eliminate gradually ultra-loose monetary policy.

That said, although yen sellers may be reluctant to push the dollar against the yen beyond 152.00, this could still happen if the dollar gets fuel from tomorrow's PCE data. A rupture of this type could raise the alarm for intervention louder.

Wall Street is trading in green, gold is shining
On Wall Street, its three main indices closed in green, with the Dow Jones gaining the most and the S&P 500 achieving a new closing record. The Nasdaq gained the least, perhaps dragged down by Nvidia (NASDAQ:), which closed in the red for the second consecutive session.

More data suggesting that US inflation is proving tougher than expected could weigh on Wall Street, but any PCE-related pullback is unlikely to lead to a lasting decline. Even if delayed, the next move on U.S. interest rates is likely to be lower, which is a positive for companies that are valued by discounting free cash flows for quarters and years ahead, while recent activity has demonstrated that investors are willing to value futures more. Growth opportunities related to artificial intelligence.

Gold also traded higher yesterday, despite the recovery of the US dollar. Perhaps this is because central banks continue to engage in increased purchasing activity in an attempt to diversify their foreign exchange reserves. This suggests that even if the precious metal is dragged lower tomorrow by a higher-than-expected underlying PCE rate, the decline may prove limited and short-lived.

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