Dollar Loses Steam Ahead of Fed Meeting Minutes, US Inflation Test
The Dollar’s Downturn
The dollar experienced a widespread dip on Wednesday, following a decline in U.S. Treasury yields due to dovish Federal Reserve remarks. Traders are eagerly awaiting the central bank’s policy meeting minutes later in the day, hoping for insights into its interest rate outlook. Several Fed officials have recently indicated that the central bank may not need to tighten monetary policy as much as initially anticipated.
Fed Officials’ Dovish Comments
Atlanta Fed Bank President Raphael Bostic stated on Tuesday that there was no need to further raise borrowing costs, a sentiment echoed by Minneapolis Fed President Neel Kashkari later in the day. These remarks caused the greenback to reach a two-week low against a basket of currencies, and it remains near that level in early Asia trade, currently standing at 105.66. Meanwhile, the pound rose to a three-week high of $1.2296, and the euro remains close to Tuesday’s more than two-week peak of $1.0620 at $1.0606.
Fed’s Shifting Monetary Policy
Macquarie’s global FX and interest rates strategist, Thierry Wizman, believes that the Fed is moving away from further rate hikes, suggesting that its tightening bias may be dropped by December. This shift in policy has correspondingly led to a decrease in U.S. Treasury yields, with the two-year yield reaching a one-month low of 4.9260% on Tuesday. Currently, it stands at 4.9675%. The benchmark 10-year yield sits at 4.6468%.
Focus on Fed Meeting Minutes and US Inflation Data
Market attention now turns to the release of the minutes from the Fed’s September policy meeting, which could provide further clues about the central bank’s interest rate outlook. Additionally, U.S. inflation data is set to be released the following day. Commonwealth Bank of Australia (CBA) currency strategist Carol Kong highlights the interest in whether the Federal Open Market Committee will follow through with the extra 25-basis-point hike forecast in its latest dot plot. Any perceived dovish comments could continue the downward trend of yields, further weighing down the U.S. dollar.
Chinese Stimulus Considerations
The Australian dollar reached a one-week high of $0.6440, while the New Zealand dollar hit a two-month peak of $0.6050. These gains were slightly influenced by a report suggesting that China is contemplating new stimulus measures. The Australian and New Zealand dollars are often used as proxies for the yuan due to their liquidity. However, market caution remains regarding China’s potential implementation of large-scale stimulus, as the government has been reluctant to do so in the past year. The impact of any substantial stimulus package on the yuan and currencies linked to the Chinese economy remains uncertain.
The yuan reached 7.2839 per dollar after touching a roughly one-month high of 7.2700 on Tuesday.
