Stock Photo – An officer counts US dollar banknotes at a Money Changer VIP (Valuta Inti Prima) foreign currency exchange counter, Jakarta. BETWEEN PHOTOS/Muhammad Adimaja/focpri. (BETWEEN PHOTOS/MUHAMMAD ADIMAJA)
Elshinta.com – The dollar hovered near a three-month high at the start of Thursday morning’s Asian session, as Federal Reserve Chairman Jerome Powell’s message that interest rates need to rise higher and perhaps earlier to tame inflation, dominated sentiment and kept the US currency on the auction block.
During his second day of congressional testimony on Wednesday (8/3/2023), Powell reiterated the message falconsound, while cautioning that the debate over the magnitude and trajectory of future rate hikes is still ongoing and will depend on the data.
This caused the US dollar to halt a surge from earlier in the week, falling from a nearly three-month high against the Japanese yen to hold at 136.86. The euro and sterling were both off their multi-month lows, up 0.02% to $1.0546 and 0.09% to $1.1854, respectively.
Therefore, the US dollar index, which measures greenbacks against a basket of six currencies, it fell 0.02% to 105.61. Still, the index remains close to a three-month high of 105.88 hit in the previous session, after extending Tuesday’s 1.3% rise, its biggest daily jump since last September.
“Powell recognizes that the March decision is data driven,” said Thierry Wizman, global currency and interest rate strategist at Macquarie. “Therefore, the question we face is whether January’s economic acceleration was a fault or a trend.”
A string of strong economic data out of the United States over the past few weeks, indicating lingering inflationary pressures, led Powell to say on Tuesday (03/07/2023) that the Fed will likely need to raise interest rates more than planned and prepares to move in larger steps.
Traders rushed to shift to a more aggressive pace of rate hikes following Powell’s comments, with federal funds futures now implying a 70% chance the Fed will raise rates by 50 basis points this month- ci, against only around 9.0% a month ago. US interest rates are also expected to stay above 5.5% until the end of the year.
On the other hand, the central bank of Canada maintained its key rate at 4.50% on Wednesday (03/08/2023), thus becoming the first major central bank to suspend its monetary tightening campaign. The Canadian dollar stood at 1.3808 to the dollar early Thursday, after weakening to a more than four-month low in the previous session after the decision.
The Australian dollar also continued to come under pressure for the same reason, falling 0.06% to $0.6586 in Asian trade, after Australia’s central bank governor Philip Lowe said on Wednesday (03/ 08/2023) that the central bank was closer to halting interest rate hikes. and said a shutdown could take place as early as April.
“Lowe seems open to growing differences in monetary policy trajectories between Australia and the United States,” said Belinda Allen, senior economist at Commonwealth Bank of Australia.
Elsewhere, the kiwi rose 0.03% to $0.6107, after falling to a four-month low in the previous session. The offshore yuan languished near the key psychological 7 to the dollar mark and last settled at 6.9657, ahead of Chinese inflation data due later on Thursday.
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