The dollar was on the back foot on Wednesday, as investors awaited a U.S. interest rate decision later in the day, with doubts about how long the Federal Reserve will maintain its tight policy stance amid disappointing jobs data and concerns over the U.S. debt limit and banking sector woes.
U.S. job openings dropped for a third consecutive month in March and layoffs rose to the highest level in more than two years, data showed on Tuesday, suggesting some relief for the Fed’s battle against inflation as the labour market cools down.
The dollar index DXY , which tracks the U.S. currency against six peers, slipped 0.128% to 101.710, after losing 0.245% on Tuesday.
The Fed is widely expected to lift interest rates by 25 basis points when it ends a two-day meeting on Wednesday and investor focus will be on whether the Fed signals a pause or further tightening.
Bank of Singapore currency strategist Moh Siong Sim said markets are pricing in rate cuts towards the end of the year due to the stress in the U.S. banking system. But, Moh reckoned that the Fed might try to downplay the prospect for lower rates as data is showing that while “the U.S. economy is slowing, it is not slowing fast enough to bring inflation back to the 2% target.”
The Fed’s meeting comes as U.S financial markets are rattled by the collapse of San Francisco-based First Republic Bank FRC over the weekend as well as fears that the government could run out of money after June 1 without a debt ceiling hike.
The yield on 10-year Treasury notes US10Y plunged 13.3 basis points to 3.440% on Tuesday, while the yield on the 30-year Treasury bond (US30YT=RR) fell 8.5 basis points. With Japan closed for holiday, cash Treasuries were not traded Wednesday.
The dollar was under pressure on Wednesday, as investors looked ahead to a U.S. interest rate verdict later in the day, with uncertainty about how long the Federal Reserve will keep its policy tight amid weak jobs data and worries over the U.S. debt ceiling and banking sector troubles.
U.S. job openings declined for a third month in a row in March and layoffs surged to the highest level in more than two years, data showed on Tuesday, indicating some easing for the Fed’s challenge against inflation as the labour market slows down.
The dollar index DXY , which gauges the U.S. currency against six rivals, dipped 0.128% to 101.710, after shedding 0.245% on Tuesday.
The Fed is widely expected to hike interest rates by 25 basis points when it wraps up a two-day meeting on Wednesday and investor focus will be on whether the Fed hints at a pause or further tightening.
Bank of Singapore currency strategist Moh Siong Sim said markets are anticipating rate cuts towards the end of the year due to the stress in the U.S. banking system. But, Moh reckoned that the Fed might try to minimize the prospect for lower rates as data is showing that while “the U.S. economy is slowing, it is not slowing fast enough to bring inflation back to its 2% target.”
The Fed’s meeting comes as U.S financial markets are shaken by the failure of San Francisco-based First Republic Bank FRC over the weekend as well as fears that the government could run out of cash after June 1 without a debt ceiling hike.
The yield on 10-year Treasury notes US10Y plummeted 13.3 basis points to 3.440% on Tuesday, while the yield on the 30-year Treasury bond (US30YT=RR) dropped 8.5 basis points. With Japan closed for holiday, cash Treasuries were not traded Wednesday.
Meanwhile, the euro
EURUSD gained 0.23% to $1.1024 after rising 0.2% overnight ahead of the European Central Bank’s regular policy meeting on Thursday.
Data on Tuesday showed euro zone inflation picked up last month but underlying price growth eased unexpectedly, adding to arguments for a smaller interest rate rise from the ECB.
According to pricing in derivatives markets, traders think there is roughly an 85% chance of a 25 bp ECB rise on Thursday, and a 15% chance of 50 bps.
Ryota Abe, an economist in global markets and treasury department at Sumitomo Mitsui Banking Corporation, said markets have priced in more rate rises in the euro area than in the United States. “If the difference in rates between the two regions become clearer, DXY (dollar index) may fall below the 100 mark.”
Elsewhere, the Australian dollar
AUDUSD climbed 0.11% to $0.667, a day after the Reserve Bank of Australia surprised markets by lifting the cash rate to 3.85% and said further tightening may be required to tame inflation.
The kiwi
NZDUSD advanced 0.40% to $0.623, while sterling
GBPUSD was last trading at $1.249, up 0.21% on the day.
The Japanese yen
USDJPY strengthened 0.40% to 136.01 per dollar, recovering some of its losses from last week when the Bank of Japan stuck to its ultra-loose monetary policy.