The dollar is calm as the Fed calls for patience; kiwi pounces on hawkish RBNZ outlook

The dollar is calm as the Fed calls for patience; kiwi pounces on hawkish RBNZ outlook
The dollar is calm as the Fed calls for patience; kiwi pounces on hawkish RBNZ outlook

The dollar held steady against a handful of other currencies on Wednesday, as investors weighed calls for patience from Federal Reserve officials and waited for minutes from the Fed meeting to learn more about the path of interest rates. central bank.

The kiwi stood out from the rest of the world, surging after the Reserve Bank of New Zealand raised its interest rate forecast at its latest monetary policy meeting.

With no further economic data to stimulate the market this week, major currencies continued to trade in a tight range.

Investors largely boosted U.S. rate cut bets after weaker inflation last week, even as Fed officials continued to exercise caution.

Fed Governor Christopher Waller said last night that he would need several more months of good inflation data before he could support rate cuts.

Cleveland Fed President Loretta Mester echoed this timeline.

Markets have now priced in around 43 basis points (bps) of easing for this year, up from 52 bps last week.

Still, Mr. Waller’s comments didn’t bring much new insight to the market, said Kyle Rodda, senior financial markets analyst at Capital.com.

“He basically told us that if inflation falls, the Fed will cut interest rates… One implies the other and says nothing about whether inflation and rates will fall.” .

While markets remain hopeful that U.S. inflation will continue to slow, PCE data due on May 31 will be a crucial test to confirm those expectations, he added.

The dollar index was flat against a basket of currencies at 104.65, after briefly rising to 104.76 overnight.

Ahead of next week’s data, the market will get the minutes of the Fed’s April 30-May 1 monetary policy meeting, which market participants will scrutinize for any “dovish or hawkish undertones masked by the consistency of the Fed speech,” said Andy Ji, senior Asia foreign exchange analyst at InTouch Capital Markets.

HAWKISH SURPRISE

The RBNZ added action in Asian trading with a hawkish surprise.

While the central bank left its benchmark rate at 5.5% as expected, it raised its forecast for maximum interest rates and pushed back the date by which it expects cuts, as inflation remains stubbornly high.

It now forecasts rates will peak at 5.7% at the end of 2024, up from 5.6% three months ago.

The New Zealand dollar rose to $0.6152 in response, its highest level since March 14. It was up 0.4% against the greenback at $0.6117.

Elsewhere, sterling was little changed at $1.2709, not far from a two-month high hit on Tuesday, as the market awaits a key UK inflation report due later in the day.

Economists polled by Reuters say data will likely show headline inflation slowed sharply to 2.1% in April, although the Bank of England (BOE) thinks it will accelerate again to around 2.1%. 6% later in the year.

Markets are pricing in a 53 basis point cut from the Bank of England this year.

The euro remained stable at $1.0853.

Against the yen, the dollar rose 0.1% to 156.35.

Fears of Tokyo’s intervention in the foreign exchange market have kept traders on alert after the series of suspected interventions earlier this month.

“While the alleged intervention failed to anchor the USD/JPY pair at its lowest level, it appears to have helped facilitate a more orderly rally,” said Ji of InTouch Capital Markets.

The yen was unchanged after Japanese exports rose 8.3% in April from a year earlier.

Looking at cryptocurrencies, bitcoin fell 0.2% to $69,571.00.

Ether rose 0.09% to $3,748.80 after hitting its highest level since mid-March on Tuesday.

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