Dollar Inches Higher as Fed's Signals No Rush to Cut Rates

A teller sorts US dollar banknotes inside the cashier's booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya/File photo
A teller sorts US dollar banknotes inside the cashier's booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya/File photo
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Dollar Inches Higher as Fed's Signals No Rush to Cut Rates

A teller sorts US dollar banknotes inside the cashier's booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya/File photo
A teller sorts US dollar banknotes inside the cashier's booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya/File photo

The dollar inched up on Thursday after the Federal Reserve indicated it was in no rush to cut rates further this year due to uncertainties around US tariffs, while the pound slipped ahead of the Bank of England's policy decision.

The Swiss franc weakened slightly after the Swiss National Bank lowered its policy rate to 0.25%, while the Swedish crown was steady after its central bank held rates steady.

US policymakers projected two quarter-point interest rate cuts were likely later this year, the same median forecast as three months ago, even as they expect slower economic growth and higher inflation. On Wednesday, the Fed held its benchmark overnight rate steady in the 4.25%-4.50% range, Reuters reported.

"We're not going to be in any hurry to move," Fed Chair Jerome Powell said. "Our current policy stance is well-positioned to deal with the risks and uncertainties we face ... The right thing to do is to wait here for greater clarity about what the economy is doing."

Powell's comments and the Fed statement underscored the challenge faced by policymakers as they navigate President Donald Trump's plans to levy duties on imports from US trading partners and the impact on the economy.

"There is probably not enough in the Fed communication to build fresh USD shorts," said ING FX strategist Francesco Pesole.

Traders are pricing in 63 basis points of Fed easing this year, about two rate reductions of 25 bps each, and around a 50% chance of a third. Markets are fully pricing in the next cut in July, LSEG data showed.

The dollar index, which measures the US currency against six rivals, was 0.3% higher at 103.69 but stayed close to the five-month low of 103.19 touched earlier this week. The euro was down 0.3% at $1.0871.

EUROPE'S CENTRAL BANK BONANZA

Sterling touched a more than four-month high of $1.3015 in early Asian hours before retreating back to $1.2975 ahead of the BoE policy decision, where the central bank is expected to keep rates on hold.

With UK inflation stuck firmly above its 2% target, the BoE has cut borrowing costs by less than the European Central Bank and the Fed since last summer, contributing to the country's sluggish growth rate.

Data on Thursday showed pay growth was little changed and other signs of stability in the jobs market.

"The latest labour market data won't do much to build conviction amongst the Monetary Policy Committee as they continue to balance a weak economy and sticky inflation," said Matt Swannell, chief economic adviser to the EY ITEM Club.

"A decision to hold the bank rate later today seems inevitable."

The Swiss franc weakened slightly against the dollar and euro after its central bank cut its interest rate to 0.25%, its fifth successive cut, and said it was prepared to intervene in the FX market as necessary.

In a busy day for central banks, Sweden's central bank kept its policy rate unchanged at 2.25%, as expected.

The Swedish crown was slightly weaker against the stronger dollar and up on the softer euro. The crown has been the best performing major currency against the dollar this year on expectations of a ceasefire in Ukraine and improved domestic economic prospects.

The yen was a shade stronger at 148.54 per dollar, a day after the Bank of Japan kept rates steady and warned of heightening global economic uncertainty, suggesting the timing of further hikes will depend on the fallout from US tariffs.

The yen has risen nearly 6% this year as traders bet that the Japanese central bank will hike rates this year as well as benefiting from geopolitical tensions leading to safe asset flows.

Elsewhere, Turkey's lira was steady at 38 per dollar after plunging to a record low of 42 per dollar on Wednesday as authorities detained President Tayyip Erdogan's main political rival.

The Australian dollar fell 0.7% to $0.6312 after Australian employment posted a surprise fall in February, ending a strong run of impressive gains, as the red-hot labour market loosened a little, although the jobless rate remained steady.

The New Zealand dollar fell 1% to $0.5760 even as data showed the economy crawled out of a recession and grew at a faster-than-expected pace of 0.7% last quarter, although underlying details were soft.



China Slams US Sanctions on Oil Refinery in Shandong

A view of the logo of the Organization of the Petroleum Exporting Countries (OPEC) outside their headquarters in Vienna, Austria, November 30, 2023. Reuters
A view of the logo of the Organization of the Petroleum Exporting Countries (OPEC) outside their headquarters in Vienna, Austria, November 30, 2023. Reuters
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China Slams US Sanctions on Oil Refinery in Shandong

A view of the logo of the Organization of the Petroleum Exporting Countries (OPEC) outside their headquarters in Vienna, Austria, November 30, 2023. Reuters
A view of the logo of the Organization of the Petroleum Exporting Countries (OPEC) outside their headquarters in Vienna, Austria, November 30, 2023. Reuters

Oil prices settled higher on Friday and recorded a second consecutive weekly gain as fresh US sanctions on Iran and the latest output plan from the OPEC+ producer group raised expectations of tighter supply.
Brent crude futures rose 16 cents, or 0.2%, to settle at $72.16 a barrel. US West Texas Intermediate crude futures rose 21 cents, or 0.3%, to $68.28.
On Thursday, the US Treasury announced new Iran-related sanctions, which for the first time targeted an independent Chinese refiner among other entities and vessels involved in supplying Iranian crude oil to China.
For its part, China on Friday slammed US sanctions on Chinese companies imposed over imports of Iranian oil.
Beijing has always opposed the use of “illegal unilateral sanctions” and “long-arm jurisdiction” and called on the US to “stop interfering with and undermining the normal trade and economic cooperation between China and Iran,” Chinese Foreign Ministry spokesperson Mao Ning told a news conference in Beijing.
“China will take all measures necessary to firmly safeguard the lawful rights and interests of our companies,” she added.
RBC Capital Markets LLC analysts including Brian Leisen said in a note on Friday, “We see this as a clear risk escalation for physical flows for the region, though today’s moves stopped short of a full physical impediment to the illicit Iranian oil trade into China.”
They added, “We think it reasonable that the risk premium here is taken more seriously.”
It was the fourth round of sanctions on Iran's oil sales since President Donald Trump's February call for “maximum pressure” on Tehran, including efforts to drive its crude exports to zero.
Analysts at ANZ Bank said they expect a 1 million barrels per day (bpd) reduction in Iranian crude oil exports because of tighter sanctions. Vessel tracking service Kpler estimated Iranian crude oil exports above 1.8 million bpd in February.
Oil prices were also supported by the new OPEC+ plan for seven members to cut output further to compensate for producing more than agreed levels. The plan would represent monthly cuts of between 189,000 bpd and 435,000 bpd until June 2026.
OPEC+ this month confirmed that eight of its members would proceed with a monthly increase of 138,000 bpd from April, reversing some of the 5.85 million bpd of output cuts agreed in a series of steps since 2022 to support the market.
“While the group shares a plan for compensation cuts, it certainly doesn’t mean members will follow it. A handful of members have consistently produced above their target production levels,” ING analysts said in a note on Friday.
Separately, a new explosion rocked an oil depot in Russia's southern Krasnodar region on Friday where firefighters had been trying to extinguish a blaze that had broken out on Tuesday after a Ukrainian drone attack hours after Putin spoke to Trump.
“During the extinguishing process, due to depressurisation of the burning tank, there was an explosion of oil products and release of burning oil,” Russian regional authorities said on the Telegram messaging app
The depot, near the village of Kavkazskaya, is a rail terminal for Russian oil supplies to a pipeline linking Kazakhstan to the Black Sea. Russia's foreign ministry said on Thursday that Ukraine had already violated a proposed ceasefire on energy sites by attacking the depot.