Dollar strengthens on European trade session on Fed expectations
2023.02.23 06:53
Dollar strengthens on European trade session on Fed expectations
By Ray Johnson
Budrigannews.com – A day after minutes from the Federal Reserve’s most recent policy meeting supported, but did not add to, markets’ belief that the central bank will raise rates further, the dollar remained close to multi-week highs against other major currencies on Thursday.
The dollar was at 134.8 Japanese yen, just off its two-month high of 135.2 reached on Tuesday, while the euro was unchanged at $1.0606, just above its near-seven-week trough of $1.0598.
The, which compares the dollar to six major peers, was steady at 104.48 on the day.
Minutes from the Jan. 31-Feb. period show that the index rose 0.36 percent on Wednesday. The first meeting of the Federal Open Market Committee (FOMC) revealed that nearly all Fed policymakers wanted to slow down the rate of interest rate increases. However, they also said that reducing inflation that is too high would be the “key factor” in how much more rates should be raised.
As the meeting came before a series of indicators that showed the U.S. economy is doing well in February, most notably jobs data, the minutes had less of an impact because the Fed had more room to raise rates to lower inflation.
The majority of futures traders held the belief that the Federal Reserve would continue to raise interest rates by a quarter of a point at each of its subsequent three meetings.
The dollar index has increased steadily since a low of 100.8 in early February, but it is still far from its 20-year high of 114.78 in October, when the Federal Reserve was raising rates more aggressively than other central banks around the world due to concerns about the global economy.
NatWest Markets emerging markets strategist Galvin Chia stated, “The easy part of the short USD trade is over.”
“The market bias looks like good news is bad news until major releases can change the view – a resilient U.S. economy is risk-negative.”
The likelihood of higher interest rates, which is bad news for risk sentiment in this case, typically boosts safe-haven currencies like the dollar.
The Australian dollar was a rare gainer in the G10 pack, rising 0.36 percent to $0.6823 after falling to a near seven-week low of $0.6795 on Wednesday. Elsewhere, sterling remained steady at $1.2045, the Swiss franc remained unchanged at 0.9315 per dollar, and the Swiss franc remained flat.
