The dollar stays close to a one-month low because the Fed minutes don’t have many surprises.
London (Reuters) – The U.S. dollar didn’t change much on Thursday, and it was just above a one-month low. The minutes from the Federal Reserve’s meeting in May didn’t have any big surprises, and most people at the meeting wanted to raise interest rates by another 50 basis points at the June and July meetings.
The dollar index, which compares the dollar to six major currencies, was flat at 102.06. This was because the minutes showed that the Fed is likely to keep going in the same direction for now, but will keep its options open for a variety of policy choices after the July meeting.
After a short-lived jump to 102.45 right after the minutes came out on Wednesday, the index has mostly been staying around 102.
Analysts said that if the Fed wanted to slow down the tightening cycle in the second half of the year, it could do so by tightening more quickly.
Giles Coghlan, Director at GCFX, said, “From where we are now, that base case makes sense: a couple of 50 basis point rate hikes, and then we’ll see where we are.”
The dollar index hit a high of over 105 in the middle of the month, which was the highest level in almost 20 years. However, there are signs that the Fed’s aggressive actions may already be slowing economic growth, which has caused traders to cut back on tightening bets. Treasury yields have also dropped from multi-year highs.
This month, the implied yield on the eurodollar futures contract for June 2023, which shows where the market thinks interest rates will be at that time, has gone down by about 80 basis points.
The Fed thinks the economy is strong enough to handle rapid tightening, but ING thinks this could go the other way.
“Fed talk and the U.S. data calendar suggest that those higher levels for the Fed terminal rate could be easily put back into the market,” ING analysts said in an email note. This is good for the dollar.
In early European trade, the yield on a 10-year U.S. Treasury was down 3 basis points, to 2.715%.
China’s yuan fell against the dollar against a key threshold and hit a low point that hasn’t been seen in almost a week. This happened on Thursday, when investors were disappointed that Premier Li Keqiang’s rare high-profile meeting to help the economy didn’t lead to any new policy measures. The value of the yuan went down by more than 0.5 percent, to 6.75 yuan per dollar. [CNY/]
The euro didn’t change much, but the dollar went down by 0.4% to 126.73 yen.
Against the dollar, risk-sensitive currencies like the Australian, Kiwi, and Loonie were all mostly flat.
Bitcoin, meanwhile, was last traded at $29,231, which was 1% less than before. The smaller competitor fell by 4.5%.
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