Dollar declines in early trade

12 Apr 2023 , 09:27 AM

In advance of carefully awaited inflation data later in the day that would give hints about the trajectory of Federal Reserve interest rate hikes, the U.S. dollar declined on Wednesday.

All eyes are now on the inflation report after last week’s strong U.S. jobs data, with currency movements being muted prior to the report’s release.

The euro last moved up 0.1% to $1.0924, while the pound gained 0.04% to $1.2432. Both currencies are now somewhat above the one-week lows they reached on Monday.

The U.S. dollar index decreased 0.05% to 102.07 when measured against a basket of currencies.

Tuesday’s Fed speakers gave little indication of how far interest rates might rise in the United States, with New York Fed President John Williams stating that the direction of the central bank’s policy will rely on new data.

The end of rate hikes, according to Philadelphia Fed Bank President Patrick Harker, may be in sight.

The probability that the Fed will increase interest rates by 25 basis points next month is approximately 74%, but many rate decreases are also anticipated, starting as early as July and continuing until the end of the year.

Bets that the Fed will not raise rates as much as originally anticipated in order to reduce stress on the industry have increased as a result of the banking turbulence brought on by Silicon Valley Bank’s failure last month.

In light of recent stress in the banking sector, Chicago Fed President Austan Goolsbee stated on Tuesday that the U.S. central bank should be cautious when raising interest rates.

The sharp difference between the aggressive tightening cycle of the Fed’s monetary policy and the Bank of Japan’s (BOJ) ultra-loose policy is reflected in the dollar’s 0.06% decline against the yen to 133.62, albeit remaining close to Monday’s one-month high of 133.87 yen.

In its assessment on global financial stability, which was published on Tuesday, the International Monetary Fund stated that the BOJ may aid in preventing future rapid policy moves by providing more latitude in its yield curve control strategy.

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