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.



Dollar Unmoored as Traders Unsure on US Tariffs 

US dollar banknotes are seen in this photo illustration taken February 12, 2018. (Reuters)
US dollar banknotes are seen in this photo illustration taken February 12, 2018. (Reuters)
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Dollar Unmoored as Traders Unsure on US Tariffs 

US dollar banknotes are seen in this photo illustration taken February 12, 2018. (Reuters)
US dollar banknotes are seen in this photo illustration taken February 12, 2018. (Reuters)

The dollar was adrift on Wednesday, with weak US confidence data and concerns about the effect of sweeping tariffs on US growth putting the brakes on a recent bounce.

After briefly crossing below 150 yen, the dollar floated to 150.55 yen in the Asia session, but traders lacked conviction, while a messy week of tariff hits looms.

The euro, which spent a week edging lower from a five-month high, has steadied around $1.0783. Sterling held steady at $1.2931 ahead of British inflation data and a budget update due later in the day.

The euro and Russia's rouble had little immediate reaction to US deals with Russia and Ukraine to pause attacks at sea and on energy targets, though wheat prices fell as the US said it will push to lift sanctions on Russian agriculture.

That leaves the focus on next week, when US President Donald Trump has threatened to impose - or at least provide details of - a new round of tariffs on autos, chips and pharmaceuticals.

The trade-sensitive Australian dollar hovered just above 63 cents, wavering only slightly when February consumer inflation data came in a bit softer than expected.

It barely responded to Tuesday's federal budget, which promised tax cuts and extra borrowing to fund relief measures for voters ahead of a May election.

"The major driver of AUD/USD over the next few weeks, and possibly months, will be the new US trade policy and the response from foreign governments," said Commonwealth Bank of Australia strategist Joe Capurso.

"If market participants are caught flat footed by larger than expected US tariffs and retaliation by other governments next week, AUD/USD can test $0.60 in coming weeks."

The New Zealand dollar was a tad firmer at $0.5750.

Tariffs and threats of the duties have already driven counterintuitive moves in currency markets as concerns they may drive down US growth have confounded the assumption that the levies should be inflationary and drive up the dollar.

Data released on Tuesday showing US consumer confidence plunged to the lowest level in more than four years in March highlighted how the uncertainty is weighing heavily on households.

For the quarter, the dollar index - which had rallied strongly between September and January - is headed for a roughly 4% drop. It was stalled at 104.32 in the Asia afternoon.

In emerging markets, Türkiye's lira found a footing just below 38 to the dollar after the finance minister and central bank governor told investors they would do whatever was needed to tame market turmoil triggered by the arrest of President Recep Tayyip Erdogan's main political rival.

Indonesia's currency teetered near a record low as worries over slowing growth and rising government spending shook confidence in Southeast Asia's biggest economy.