SINGAPORE (Reuters) – Tuesday was the third day in a row that the dollar fell against other major currencies. This slowed down a long run of gains as investors cashed out and cut their bets on U.S. interest rate rises driving more gains.
The Chinese yuan has also stopped falling after dropping more than 6 percent in a month. The last price was 6.7795 dollars per unit. The euro went up a little to $1.0442, and each of the Antipodean currencies went up about 0.5%.
The dollar’s short break has brought the dollar index back down to 104.169, which is about 0.8% below last week’s 20-year high of 105.010.
John Briggs, global head of strategy at NatWest Markets, told reporters in Singapore, “We’re moving from a story about inflation to a story about growth.”
Even though the reason for gains is changing, he still thinks the dollar will continue to find support. But lately, there haven’t been any new reasons to expect sharp rate hikes, and longer-term U.S. yields have gone down because people are afraid of a recession.
Briggs said, “Even if it’s on a downward growth path, the U.S. will probably still do better.” “It’s like the most beautiful horse in a glue factory.”
The dollar is still stronger than the Swiss franc and ahead in Asia’s emerging markets, where rising food prices are thought to be putting pressure on the economies of the area.
On Tuesday, the dollar reached a new record high against the Indian rupee and its highest level against the Indonesian rupiah since 2020.
The Chinese yuan, on the other hand, has finally found its footing as Shanghai nears the end of its lockdown.
On Tuesday, there had been no new COVID-19 cases outside of quarantine zones for three days in a row. In other cities, this has been a sign that restrictions are about to be lifted.
“Dollar/(yuan) has been a big factor in G10 currencies,” said Chris Weston, head of research at brokerage Pepperstone in Melbourne.
He also said that the dollar’s rise has stopped for now because its fall has stopped and the markets have become less volatile.
RATE EXPECTATIONS
On Tuesday, a few speakers from the Federal Reserve, including Chairman Jerome Powell at 1800 GMT, will be closely watched to see if they say anything about whether near-term rate expectations could become even more aggressive.
Futures markets predict that the benchmark U.S. interest rate will go up by 50 basis points in both June and July, and that it will reach 2.75 percent by the end of the year. But it’s becoming more likely that other central banks will catch up.
This month, the difference between 10-year German and U.S. real yields has shrunk by more than 30 basis points, and rates have gone up in Britain and Australia.
Minutes from the May meeting of Australia’s central bank, which were released on Tuesday, show that they considered a sharper rise in interest rates. This is a strong sign that they will raise rates again in June.
The Australian dollar has risen more than 2.5% since last week, when it hit a two-year low. On Tuesday, it was back above 70 cents at $0.7002. At the same time, the New Zealand dollar has gone up by about 2% and last bought $0.6333.
If wages data on Wednesday beats expectations, it could give the Aussie dollar another boost.
Analysts at ANZ Bank said in a note that the Reserve Bank of Australia could raise interest rates by 40 basis points if tomorrow’s wage price index showed a 1 percent increase from the previous quarter.
Sterling has gone up about 1.5% since it hit a two-year low and is now worth $1.2341. The yen was worth 129.37 dollars, which was above its lowest point in 20 years.
