Dollar falls in early trade as rate hike cycle may soon end

27 Jul 2023 , 12:22 PM

The Federal Reserve delivered what some believed to be its final rate hike on Thursday, and the market’s attention switched across the Atlantic to the European Central Bank’s (ECB) rate decision later in the day. This put the dollar on the back foot.

As anticipated, the Fed increased interest rates by a quarter of a percentage point on Wednesday, making it the central bank’s 11th meeting in the past 12 to do so.

Jerome Powell, the chairman of the Federal Reserve, left the possibility of another raise in September open, but traders were dubious, driving the U.S. dollar generally down.

The dollar index recently fell by 0.04% to 101.06, down from a two-week high of 101.65 reached earlier in the week. However, the decline was not as severe as it might have been because money markets had already factored in Wednesday’s 25-basis-point hike.

After barely eking out a gain against the dollar in the previous session, sterling held steady at $1.2935.

Next in line for attention is the European Central Bank (ECB), with investors anticipating that the central bank would conclude its monetary policy meeting later on Thursday with a rate increase of 25 basis points, with an emphasis on its forward guidance.

The euro strengthened to $1.1083 before the rate decision was made.

Ahead of the Bank of Japan’s monetary policy announcement on Friday, where it is expected to retain its ultra-loose policy stance, the Japanese yen continued to be under pressure and down more than 0.1% to 140.43 per dollar.

At a crucial government meeting on Wednesday, BOJ Governor Kazuo Ueda was quoted as stressing that the central bank would keep business-friendly monetary circumstances.

The Australian dollar increased by 0.14% to $0.6769, while the kiwi increased by 0.27% to $0.6226.

The Australian dollar had lost roughly 0.5% of its value in the previous session as the Reserve Bank of Australia felt less pressure to raise interest rates due to lower-than-expected inflation data.

The offshore yuan increased somewhat to 7.1433 per dollar, but was struggling to find direction as investors felt conflicted following China’s leadership’s commitment to boost the economy at a significant Communist Party meeting this week, which provided very little clarity on specific actions.

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