Dollar shows stability in early trade as traders assess fed outlook

8 Jun 2023 , 09:50 AM

The dollar stabilized on Thursday, while it received some support from higher U.S. Treasury yields as investors debated whether the U.S. Federal Reserve would raise interest rates again, even if it takes a break next week.

The unexpected rate rises this week by the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) have led to higher anticipation that U.S. and global interest rates will continue to rise.

After a four-month break, the BoC increased its overnight rate to 4.75% on Wednesday. On the other hand, the RBA lifted interest rates by a quarter point on Tuesday to an 11-year high and foreshadowed future increases.

The Canadian currency last held steady against the US dollar at C$1.3365 after reaching a one-month high of C$1.3321 the previous session.

In other news, early Asian trading saw the U.S. dollar edging widely lower. Sterling increased by 0.08% to $1.2449, and the euro also increased by 0.08% to $1.0707.

The governors of the European Central Bank had on Wednesday adopted a hawkish stance and indicated that additional rate hikes are imminent, with interest rates likely to stay higher for longer.

The dollar decreased 0.21% to 139.85 yen in relation to Thursday’s data revealing that Japan’s GDP expanded by an annualised 2.7% in the first quarter, significantly more than the initial projection of a 1.6% expansion.

The rise in Treasury yields caused the U.S. dollar index to marginally decline to 104.02, although it didn’t deviate too much from a more than two-month high reached last week.

The two-year Treasury yield, which normally rises in tandem with forecasts for interest rates, was last at 4.5479% after reaching a session high of 4.604%, surpassing the previous week’s high.

The benchmark 10-year yield last stood at 3.7914%, up nearly 10 basis points from its Wednesday peak of 3.801%.

The probability that the Fed will raise rates by 25 basis points at its policy meeting next week is 29%, according to the money markets.

The Australian dollar last traded 0.18% higher at $0.6665 after falling nearly 0.3% the previous session, while the New Zealand dollar gained 0.22% to $0.6050, partially offsetting Wednesday’s 0.7% decline.

The Turkish Lira plunged to a record low of 23.39 per dollar against other currencies.

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