TOKYO, Jan 24 — The dollar hovered near a six-week high against major peers today as investors cemented expectations that the Federal Reserve would be in no rush to cut interest rates in the face of a resilient US economy.
The Japanese yen, though, ticked higher as expectations rose for a stimulus exit as soon as March, following hawkish comments from the Bank of Japan yesterday.
The US dollar index — which tracks the currency against six rivals, including the euro and yen — was flat at 103.48 after rising to the highest since December 13 at 103.82 in the previous session.
The US rate futures market yesterday priced in a roughly 47 per cent chance of a March rate cut, up from late on Monday, but down from as much 80 per cent about two weeks ago, according to LSEG’s rate probability app.
For 2024, futures traders are betting on five quarter-point rate cuts. Two weeks ago they expected six.
In the last comments before Fed officials entered a blackout period ahead of their January 31 policy decision, San Francisco Fed President Mary Daly said Friday she believes monetary policy is in a “good place” and it is premature to think rate cuts are imminent.
Earlier that week, Fed Governor Christopher Waller said policymakers would move “carefully and slowly”, which traders took as pushing back at pricing for a speedy fall in rates.
“Markets have been correcting from the narrative that rate cuts were incoming and incoming quickly,” leading to dollar strength, said James Kniveton, senior corporate FX dealer at Convera.
“This follows a general pattern of resistance to inflation reduction the closer central banks get to their final target, and has caused a rethinking of how fast monetary policy would return to lower levels,” he added. “We have seen ECB (European Central Bank) officials push back on rate cut expectations as well, in line with the Federal Reserve.”
The ECB decides policy tomorrow. No change in interest rates is expected, but investors will watch the tone of the statement and central bank chief Christine Lagarde’s press conference for clues on where rates are headed.
The euro was flat at US$1.08565, after slipping as low as US$1.0822 yesterday for the first time since December 13.
Sterling GBP=D3 was slightly higher at US$1.2694, making up some ground following an overnight dip of 0.2 per cent. The Bank of England announces its policy decision on February 1.
The Japanese yen gained some ground today, following a volatile session a day earlier, after the BOJ opted to keep stimulus settings unchanged, as expected, but central bank head Kazuo Ueda hinted at a possible end to negative rates in April or even March.
The dollar declined 0.17 per cent to ¥148.085, after swinging from as low as 146.99 and as high as 148.70 yesterday.
The Bank of Canada meets on policy today, and is expected to leave its key overnight rate unchanged at a 22-year high of 5 per cent.
The greenback was flat at C$1.3462, after slipping 0.15 per cent yesterday.
China’s yuan was steady in offshore trading at 7.1660 per dollar, keeping close to a nearly two week high of 7.1635 from yesterday, when Bloomberg reported that Chinese policymakers are seeking to mobilise about 2 trillion yuan (US$278.86 billion) as part of a stabilisation fund to support the ailing stock market.
Elsewhere, cryptocurrency bitcoin steadied at just above US$40,000 after sliding as low as US$38,505 yesterday for the first time since December 1.
Traders have unwound bullish positions built up in anticipation of US approval of the country’s first spot bitcoin exchange traded fund (ETF).
Bitcoin had surged to a record US$49,048 on January 11, a day after the approval, but tumbled as low as US$41,509 in the subsequent session as traders dumped the token in a textbook sell-the-fact move. — Reuters