The dollar neared its highest level of the year against a basket of currencies and U.S. stock futures fell Wednesday ahead of the Federal Reserve’s decision, although trading was limited, with many European and Asian markets closed.
The dollar gained more than 0.5% Tuesday across the six currencies that make up the dollar index, leaving the gauge at 106.49, a whisker away from its highest level since November.
The euro was under pressure at $1.0664, returning to five-month lows from mid-April, while the pound was at $1.2488.
The dollar’s latest move higher came after stronger-than-expected growth in U.S. first-quarter employment costs on Tuesday, sending Treasury yields higher and prompting markets to bet more on a Fed rate cut this year.
Operators are currently only considering one rate cut in 2024.
The Fed is almost certain to hold its benchmark overnight interest rate later today, but a policy statement issued at 2 p.m. EDT (1800 GMT) and Chairman Jerome Powell’s news conference a half- hour later should provide insight into how much – if anything – a string of three lost months in the fight against inflation has affected the likelihood that borrowing costs will fall soon.
“The question is to what extent Powell already anticipated the change in rhetoric in his last intervention,” said Michael Sneyd, head of multi-asset and macro quantitative strategy at BNP Paribas.
The Fed chairman said in mid-April that monetary policy needed to be restrictive for longer.
“On the eve of the Fed meeting, we see that from a short-term perspective, the dollar is not cheap anywhere,” Mr. Sneyd said.
“From a position perspective, the dollar looks well held, and from a valuation perspective, the dollar is either consistent with the fair value of a stronger dollar or slightly richer, showing that the market anticipates this more hawkish change, and, if necessary, paves the way for disappointment.
The benchmark 10-year Treasury yield remained stable at 4.690%, close to 4.739% in mid-April, its highest level in five months, after rising 7 basis points the day before.
European bond markets were closed for the May 1 holiday, as were most equity markets in Europe, China, Hong Kong and much of Asia. US S&P500 futures fell 0.2%.
Among active stock markets, Britain’s FTSE index rose slightly, remaining near its latest all-time high set the day before, while Japan’s Nikkei index fell 0.3%.
Britain’s flagship index, which has underperformed its global peers in recent months, was a rare winner in April, rising 2.4%, helped by commodity stocks, as the MSCI world index fell 3.4%, its biggest monthly decline since September.
The other point of attention in the currency markets is the Japanese yen. The currency fell to 160 per dollar on Monday, its lowest level since 1990, before recovering several times to reach 154.4 per dollar, with traders highlighting the likelihood of official intervention.
Japanese authorities may have spent some 5.5 trillion yen ($35.05 billion) to prop up the currency on Monday, according to Bank of Japan data released Tuesday, but the yen held steady at 157.9, which is more than half the way to its pre-intervention level.
Oil prices fell for a third time on Wednesday as hopes rose for a Middle East ceasefire deal and crude stocks and production rose in the United States, the biggest consumer. of oil in the world.
Brent fell 1% to $85.40 a barrel. U.S. crude oil fell 1.3% to $80.90.
Gold remained stable at $2,284.4 an ounce, down 6% from its mid-April record, also affected by the easing of tensions in the Middle East.
