Mon, June 05, 2023

After Euro’s Historical Losses, Is It Time for The Dollar?

Dollar and Euro

On Wednesday, the US dollar declined as investors awaited the US. The Federal Reserve’s policy choice has sparked conjecture that it may signal a slowing in rate increases.

At 2:00 p.m., the central bank will announce its policy statement. Investors anticipate a rate increase of 75 basis points (bps), the fourth consecutive increase, at 8:00 a.m. EDT (18:00 GMT). However, the futures market can’t decide whether there would be a 75- or 50-bps rise at the December meeting. The dollar index, which compares the dollar value to a basket of six currencies, including the yen, the euro, and the pound, declined by 0.2% to 111.28 but was still close to Tuesday’s high of 111.78, the highest point since October 25.

Here Is What Experts Predict

According to Daria Parkhomenko, an FX analyst at RBC Capital Markets, it would be challenging for Powell to find a balance. The market will be searching for hints of a potential slowdown in the pace of rises during the December meeting. As there are still two more CPI data, inflation reports, and two NFP releases before that meeting, they anticipate the Fed will want to keep the flexibility of increasing 50bps or 75bps in December.

The euro and pound increased somewhat to $0.9889 and $1.1494 against the declining dollar. Strong gains were also in the risk-sensitive Australian and New Zealand currencies. They had support from a surge in Chinese stock markets as rumors of an economic reopening began to spread.

With speculators on the lookout for potential intervention surrounding the Fed meeting, the yen, which has lost a staggering 28% of its value versus the US dollar this year, has outperformed. It increased by 0.8% to $107.07 per unit. For the first time since 1998, the Bank of Japan and the Japanese Finance Ministry intervened in September to strengthen the yen. Although they have not announced any intervention, Japanese officials are believed to intervene again in October to push the yen against the dollar from a 32-year low of $152.

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