SINGAPORE – The dollar weakened on Tuesday after Federal Reserve officials signaled the central bank was nearing the end of its tightening cycle, though it traded in a tight range ahead of a key US inflation report. .
Several Fed officials said Monday that the central bank may need to raise interest rates further to bring down still-high inflation, but that the end of its current tightening cycle was drawing near.
The comments sent the dollar to a two-month low of 101.88 against a basket of currencies in early Asian trading, as traders lowered their expectations for how much more US interest rates should rise.
US interest rate expectations have been a key driver of the dollar since the Fed began its tightening cycle last year.
Meanwhile, sterling hit a fresh 15-month high of $1.2869, while the euro rose 0.03 percent to $1.1004.
“The FOMC speech was the main focus yesterday and the officials speaking reiterated the recent message that there are likely to be a couple more rate hikes in the coming months, so it’s not really a surprise,” Carol said. Kong, a currency strategist at the Commonwealth Bank of Australia. .
Markets are now turning their attention to US inflation data due for release on Wednesday, which will provide more clarity on the progress the Fed has made in its fight against stubbornly high consumer prices.
A survey by the New York Federal Reserve on Monday showed a decline in near-term inflation expectations among Americans, who said last month they expected the weakest near-term inflation gains in just over two years.
“If we get a strong CPI report (tomorrow), that may help market prices for a second FOMC rate hike (after July) and push the dollar a bit higher,” Kong said. “But I don’t think there’s any major upside given that we’re near the top of the FOMC tightening cycle.”
The Japanese yen rose to a near-month high of 141.15 to the dollar on Tuesday and last bought 141.43 to the dollar, receiving support from a drop in US Treasury yields.
The dollar/yen pair is particularly sensitive to US yields as interest rates in Japan are anchored near zero.
Elsewhere, the Australian dollar gained 0.16 percent to $0.6687, while the New Zealand dollar added 0.06 percent to $0.6216.
Gains for the two antipodean currencies against the dollar were limited by China’s faltering economic recovery, as both are often used as a liquid proxy for the Chinese yuan.
The yuan was marginally higher at 7.2254 to the dollar in the offshore market.
Data on Monday showed China’s producer prices fell at their fastest pace in more than seven years in June, while consumer prices teetered on the brink of deflation.
“China’s year-over-year CPI and PPI data for June came in below expectations and points to China’s continued fight against deflation in the absence of strong aggregate demand,” Macquarie strategists said in a statement. note.
“For traders to turn positive on China, it looks like it will take nothing less than a forceful stimulus program.”
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