Dollar falls in early trade

13 Jun 2023 , 11:05 AM

As investors remained cautious ahead of important U.S. inflation data due later in the day and the Federal Reserve began its two-day monetary policy meeting, the dollar nudged broadly lower on Tuesday but traded in a narrow range.

When the Fed releases its interest rate decision on Wednesday, it may have room to pause its aggressive rate-hike cycle if the U.S. Labour Department’s CPI report reveals that inflation moderated marginally in May.

According to the CME FedWatch tool, markets are presently pricing in an 80% likelihood that the Fed will keep rates on hold at its meeting this week.

These forecasts kept the risk sentiment upbeat, pushing the US dollar down versus the risk-averse Australian and New Zealand dollars to multi-week lows.

The Australian dollar last moved up 0.04% to $0.6753 after reaching a month-high of $0.6774 the previous session.

The kiwi held steady at $0.6123, not far from its best level since May 24 on Monday when it reached $0.6153.

Sterling increased 0.07% to $1.2520 in other markets after reaching a one-month high of $1.2600 on Monday as a result of hawkish remarks from Bank of England governors who suggested that interest rates may need to rise further because inflation is still sticky.

The euro increased by 0.04% to $1.0760 as investors waited for the European Central Bank to announce its interest rate decision after its policy meeting on Thursday.

The market will be attempting to determine not just how high rates will go, but also how low they will fall because it is widely believed that the ECB is nearing the end of its rate hike cycle.

The dollar increased 0.02% to 139.63 yen to one.

After dropping to 103.24 on Monday, its lowest level since May 23, the US dollar index slightly increased to 103.59.

On Friday, the Bank of Japan (BOJ) is likely to make its monetary policy decision, keeping its ultra-dovish stance and yield curve control (YCC) settings in place.

The yuan fell in the offshore market after China’s central bank dropped its seven-day reverse repo rate by 10 basis points, from 2.00% on Tuesday to 1.90%.

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