Dollar near 1-month low as Fed minutes point to pause in rates

In this photo illustration US 100 dollar bills seen on an American flag.

Igor Golovniov | SOPA Images | light flare | Getty Images

The dollar hovered near a one-month low on Thursday as minutes from the Federal Reserve’s May meeting confirmed the potential for a pause in rate hikes after further hikes likely in June and July .

The dollar index – which measures the currency against six major peers – edged up 0.1% to 102.15 as a decline in Asian equities boosted demand for safe havens like the greenback.

However, the index mostly consolidated around 102 after a short-lived bounce to 102.45 immediately after the minutes were released on Wednesday.

Analysts said there was no suggestion of a further surge in the Federal Open Market Committee’s already hawkish stance. Wall Street rallied overnight on that outlook, while long-term Treasury yields held steady.

Atlanta Fed President Raphael Bostic had already suggested earlier this week that a pause might be the best course of action in September to monitor the effects on the economy after two more 50 basis point hikes. in June and July.

The dollar index hit a nearly two-decade high above 105 mid-month, but signs that aggressive Fed action could already slow economic growth prompted traders to cut bets tightening, with Treasury yields also falling from multi-year highs.

The 10-year Treasury yield followed sideways in Tokyo at 2.75%, continuing to consolidate around that level this week.

“A soft DXY backdrop is forming (although it’s still too early to call a long-term DXY peak,” Westpac strategists wrote in a client note, referencing the dollar index.

“DXY might vary a bit, but retracements at the 101 level are a buy.”

The dollar added 0.08% to 127.425 yen, while the euro was roughly flat at $1.0679. The pound slid 0.17% to $1.25615.

The risk-sensitive Aussie fell 0.25% to $0.70695. The New Zealand dollar fell 0.31% to $0.6458, having lost most of the gains following the outcome of Wednesday’s hawkish Reserve Bank of New Zealand meeting, which took it to a three-week high at $0.6514.

According to Kristina Clifton, strategist at the Commonwealth Bank of Australia, the attractiveness of the dollar as a safe haven should allow it to continue its offer.

A firm commitment to fighting inflation and a willingness to bring monetary policy to restrictive levels “suggest that the FOMC may not achieve a soft landing for the US economy (and) signs that the economy momentum will support the USD and JPY”. she wrote in a research note.

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