Ahead of inflation data, the dollar is hovering near two-week lows

12 Oct 2023 , 09:50 AM

On Thursday, the dollar fell to a two-week low as investors awaited important inflation data and the minutes from the most recent U.S. Federal Reserve meeting, which showed policymakers adopting a cautious approach.

The dollar index, which compares the value of the dollar to six rival currencies, was close to hitting 105.55 on Wednesday, its lowest level since September 25. For the week, the index is down 0.4%.

According to the minutes from the Sept. 19–20 meeting, which were made public on Wednesday, Fed officials cited economic, energy, and financial market risks as reasons to ‘proceed cautiously in determining the extent of additional policy firming that may be appropriate.’

Rising bond yields have been mentioned by Fed members as a factor that might allow them to end their cycle of rate hikes in recent remarks.

A mixed data on U.S. producer prices, which grew more than anticipated in September amid higher costs for petroleum products and food, also contributed to the cautious tone. However, the factory gate inflation pressures remained at a low level.

The news comes before Thursday’s release of the consumer price index data for September, which is anticipated to reveal that inflation eased last month.

According to the CME FedWatch tool, futures markets are pricing in a 26% likelihood of a 25 basis point hike at the December meeting and a 9% chance of a 25 basis point hike in the November meeting.

As bond prices increased in response to the Fed’s dovish outlook on future rate hikes, the dollar has recently weakened as a result of falling Treasury rates. Bond yields follow a different path than their price. Ten-year Treasury yields decreased 3.5 basis points to 4.562%.

After reaching a two-week high on Wednesday, the euro was up 0.03% at $1.062.

The European Central Bank has made headway in bringing inflation back to target, according to two senior officials, but unforeseen shocks might yet force the bank to resume its now-paused tightening cycle.

Sterling recently traded at $1.2311, unchanged on the day, while the Japanese yen gained 0.03% to 149.11 against the dollar.

The kiwi dropped 0.03% to $0.602, while the Australian dollar increased 0.05% to $0.642.

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