The dollar edged towards its highest level this year against a basket of peers and US share futures dipped on Wednesday ahead of a Federal Reserve policy decision, although trading was thin with many European and Asian markets closed.
The dollar gained more than 0.5 per cent on Tuesday on all six currencies that make up the dollar index, leaving the gauge at 106.49, a whisker off its highest since November.
The euro was under pressure at US$1.0664, heading back to its mid-April five-month lows, while the pound was at US$1.2488.
The latest move higher in the dollar came with hotter-than-expected first-quarter US employment cost growth on Tuesday, which sent Treasury yields higher and caused markets to further pair bets on Fed rate cuts this year.
Traders are currently pricing in only one rate cut in 2024.
The Fed is almost certain to hold its benchmark overnight interest rate steady later in the day, but a policy statement issued at 2 pm EDT and chairman Jerome Powell’s press conference half an hour later should provide insight into how deeply – if at all – a stretch of three lost months in the inflation battle has affected the likelihood that borrowing costs will fall any time soon.
“It’s pretty clear from the way that the data has been that we’re going to see a focus shift from the last Fed meeting, the question is the extent to which Powell has already previewed the shift of rhetoric when he last spoke,” said Michael Sneyd, head of cross-asset and macro quantitative strategy, BNP Paribas.
Powell said in mid-April that monetary policy needs to be restrictive for longer.
“Heading into the Fed, we see that from a short-term perspective the dollar is not looking cheap anywhere,” said Sneyd.
“Positioning-wise we’re seeing the dollar looking well-owned, valuation-wise we see the dollar is either in line with a stronger dollar fair value or slightly rich, and so that demonstrates the market is pre-empting this more hawkish shift , and, if anything, opens up scope for disappointment.”
The benchmark 10-year Treasury yield was flat on the day at 4,690 per cent, just shy of mid-April’s 4,739 per cent, its highest in five months, having jumped 7 bps the day before.
European bond markets were closed for the May 1 holiday as were most share markets in Europe and those in China, Hong Kong and much of Asia. US S&P500 futures dipped 0.2 per cent.
Of those share markets that were open, Britain’s FTSE edged up a touch in early trading, holding near its latest all-time intraday high hit the day before and Japan’s Nikkei dipped 0.3 per cent.
The British blue-chip index, which has underperformed world peers in recent months, was a rare gainer in April, rising 2.4 per cent helped by commodity stocks, while MSCI’s world index dropped 3.4 per cent, its biggest monthly fall since September.
The other focus in currency markets is the Japanese yen. The currency dropped to 160 per dollar on Monday, its lowest since 1990, before strengthening in several sharp bursts to as strong as 154.4 per dollar with traders pointing to likely official intervention.
Japanese officials may have spent some 5.5 trillion yen (US$35.05=billion) in supporting the currency on Monday, Bank of Japan data suggested on Tuesday, but the yen was last at 157.9, over half way back to its pre-intervention level.
Oil prices fell for a third day on Wednesday amid increasing hopes of a ceasefire agreement in the Middle East and rising crude inventories and production in the US, the world’s biggest oil consumer.
Brent was down 1 per cent at US$85.40 a barrel. US crude was down 1.3 per cent at US$80.90.
Gold was flat at US$2284.4 an ounce down 6 per cent from its mid-April record high, also affected by easing tensions in the Middle East.
– Reuters
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Tags: Premarket dollar fivemonth highs ahead Fed policy decision
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