Dollar falls on rate cut fears, Treasury yields tumble

7 Mar 2024 , 10:33 AM

Thursday saw a slight decline in the value of the US dollar relative to the yen and a one-month low as traders focused on the prospect of a decline in US interest rates this year, despite some positive inflation surprises.

In terms of cryptocurrencies, bitcoin fell from a record set earlier in the week, but the 0.4% daily loss was negligible compared to its 55% increase for the year so far.

U.S. Federal Reserve Chair Jerome Powell told lawmakers on Wednesday that rate reductions are “likely appropriate” later this year “if the economy evolves broadly as expected” and if authorities are more confident in the continuous decline in inflation.

These comments, together with data that was released on Wednesday suggesting that labour market conditions were loosening, caused U.S. Treasury yields to decline, which in turn caused the value of the dollar to decline significantly.

In early Asian trading on Thursday, the dollar hit a one-month low against the yen, trading at 148.94.

The euro and pound recently traded at $1.0902 and $1.2738, respectively, holding close to one-month highs set during the previous session.

According to the CME FedWatch tool, futures pricing presently indicates a 70% possibility that the Fed might start reducing rates by its June policy meeting, with around 87 basis points of cuts priced in for the year.

U.S. Treasury yields were also pressured by market bets on impending cuts; the two-year yield, which usually indicates near-term rate expectations, closed at 4.5640% last week. In the last session, it reached a three-week low of 4.5100%.

As a result, the value of the US dollar relative to a basket of currencies was anchored close to a one-month low. To 103.30, the dollar index decreased by 0.04%.

In other news, the Bank of Canada (BoC) maintained its benchmark overnight interest rate at 1.3518 on Wednesday, citing underlying inflation as the reason it was premature to consider a drop. The Canadian currency was little changed at 1.3518 per US dollar.

The Australian dollar increased by 0.11% to $0.6572, while the New Zealand dollar increased by 0.05% to $0.6133.

According to data released on Thursday, Australia’s trade surplus expanded in January due to an increase in farm product and gold exports that outpaced an increase in vehicle imports.

In the cryptoverse, ether dropped more than 0.2% to $3,842.20 after hitting a two-year high in the previous session, and bitcoin was last seen at $66,232.

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