Dollar Firms Up as Traders Weigh Fed’s Path
The dollar index firmed up around 102 on Tuesday, hovering near its strongest levels in three weeks as traders weighed the Federal Reserve’s path for monetary policy.
On Monday, a Federal Reserve survey showed US banks reported tighter credit standards and weaker loan demand from both businesses and consumers in the second quarter. This data could be interpreted as a sign that the Fed’s tightening cycle is starting to have an impact on the economy.
However, Chicago Fed President Austan Goolsbee said the US central bank is “walking the line pretty well” on bringing down inflation without causing a recession. This suggests that the Fed may not be as aggressive in raising interest rates as some investors fear.
Investors now look ahead to US manufacturing and services PMI data on Tuesday, as well as a key monthly jobs report later in the week. These reports will provide more clues about the health of the US economy and the Fed’s likely next steps.
The dollar strengthened notably against the Japanese yen as investors continued to assess the Bank of Japan’s yield curve control policy adjustment. The yen has been under pressure in recent weeks as the BoJ has maintained its ultra-loose monetary policy, while other central banks have begun to tighten.
The dollar also gained sharply versus the Australian dollar ahead of the Reserve Bank of Australia’s policy decision. The RBA is expected to raise interest rates by 50 basis points on Tuesday, which could boost the Australian dollar.
However, the overall tone of the dollar was positive on Tuesday as traders looked for signs that the Fed is on track to achieve a soft landing. This could keep the dollar supported in the near term
- The dollar index firmed up around 102 on Tuesday, hovering near its strongest levels in three weeks.
- The dollar strengthened notably against the Japanese yen and the Australian dollar.
- Investors looked ahead to US manufacturing and services PMI data on Tuesday, as well as a key monthly jobs report later in the week.
- The Fed’s path for monetary policy is still uncertain, but traders are starting to price in a more dovish stance.