Tue, June 18, 2024

US dollar under pressure: Main focus on the Fed

Dollar and the short-end U.S. yields surge - DXY

Job postings in the United States declined for the third month in a row in March. Meanwhile, the layoffs reached their highest level in more than two years, according to statistics released on Tuesday. Investors hold onto hopes that a weaker labor market may help the Federal Reserve battle inflation.

The US dollar index, which compares the US currency to six others, lost 0.25% to 101.61 for the second day in a row.

The Federal Reserve aims to raise interest rates by 25 basis points when it closes a two-day meeting on Wednesday. Investors will be looking for clues from officials about what they could do next.

The futures market now indicates that traders expect this will be the last boost before the Fed moves to rate-cutting mode. The central bank has stated that its moves would be based on incoming data, much of which has shown that the economy is slowing and price pressures are easing, but not sufficient to support a policy adjustment.

The weekend bankruptcy of San Francisco-based First Republic Bank has sent financial markets into a tailspin. Besides, there are fears that the government may run out of cash by June. If legislators can not reach an agreement to extend the borrowing limit, we may reach the debt ceiling.

Yields on extremely short-term Treasury bills went up in recent weeks. Moreover, the investors liquidated all the bonds that were due to maturity around the time of the deadline.

What traders really want to know is whether it is ‘one and done,’ City Index strategist Matt Simpson said. He expressed concerns about whether the US debt ceiling will cause the Fed to pause in June.

Preview of US employment report and anticipation of ECB policy meeting

Later on Wednesday, the market will get a peek at private-sector payroll growth. The insight might provide a preview of what to anticipate from Friday’s employment report. The report itself is likely to indicate that the US economy added 179,000 jobs in April.

The euro was recently up 0.3% at $1.1032, ahead of the ECB’s normal policy meeting on Thursday.

Forecasts from the money market indicate that the ECB will likely increase rates by 0.25%. Moreover, there is a 15% probability of raising rates by 50 basis points.

In other news, the Australian dollar slipped 0.1%. It reversed some of the previous day’s 0.5% gain following the Reserve Bank of Australia’s surprise rate hike.

The sterling was up 0.3% at $1.2509, while the euro remained unchanged at 88.20 pence.

The Japanese yen strengthened 0.5% to 135.83 per dollar. Irecoupedup some of its losses from the previous week when the Bank of Japan maintained its ultra-easy monetary policy.

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