FOREX-Dollar stabilizes as Fed aid wanes

By Tom Westbrook

SINGAPORE, June 16 (Reuters) – The dollar found some footing in Asia on Thursday as initial relief that the Federal Reserve had not gone further than expected in raising rates began to fade in the face of rising expectations. aggressive outlook.

Markets had anticipated the Fed’s 75 basis point hike on Wednesday and had forecast several more after a surprisingly strong inflation reading last week. But the dollar fell after President Jerome Powell’s press conference, before pausing during Asian trading.

It last bought a euro at $1.0440 and got support from US Treasury yields, which fell sharply on Wednesday but started to rise again on Thursday.

The dollar rose 0.4% to 134.25 yen, as the Fed’s rising path contrasted sharply with the Bank of Japan’s determination to set Japanese interest rates near zero.

The Aussie dollar struggled to add much to Wednesday’s upside even as jobs numbers came in stronger than expected. It was last up 0.2% at $0.7016.

The dollar index, which hit a two-decade high of 105.79 on Wednesday, was trading at 104.96.

“The reversal in the dollar index as well as rates after the Fed raised rates by 75 basis points is more than anything else indicative of elevated near-term expectations,” Westpac analysts said in a note. .

“It could pull back to the near-term low of 104, before the uptrend resumes. the index may reach 107 in the third quarter.”

Members of the Fed have significantly raised their projections for the peak in the benchmark funds rate, with the median forecast putting it around 3.8% in 2023, well above the median peak forecast of 2.8% published in march.

This, however, was met with initial relief as it was a bit lower than the 4% and more that the futures markets implied, and as Powell had no surprises in his remarks to reporters.

“Today’s 75 basis point increase is unusually large,” Powell said. “I don’t expect moves of this magnitude to be common. Looking ahead to today, a 50 or 75 basis point increase looks very likely at our next meeting.”

The greenback eased against the New Zealand dollar, but the kiwi struggled to make further progress on Thursday after data showed an unexpected contraction in the economy.

It last bought $0.6290.

The pound fell 0.3% to $1.2145 ahead of a Bank of England meeting later today that is expected to see at least a 25 basis point rise, with swap pricing implying around 80 % chance of a 50 basis point hike.

“Continued acceleration in UK inflation could encourage the BoE to deliver a hawkish message and further support the pound,” said Commonwealth Bank of Australia analyst Carol Kong.

“Nevertheless, we expect markets to reduce their expectations for BoE rate hikes, which will eventually weigh on the pound.”

Traders will also be watching several speakers from the European Central Bank closely after the ECB promised to control borrowing costs for the currency bloc’s periphery after an emergency meeting on Wednesday.

The Bank of Japan is meeting on Friday in a speculative attack on its yield curve control policy that has led to erratic trading in Japanese government bonds this week.

(Reporting by Tom Westbrook; Editing by Lincoln Feast and Kim Coghill)

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