Dollar Nears Seven-Week High on Delayed Fed Ease

1 Feb 2024 , 10:12 AM

Following Federal Reserve Chair Jerome Powell’s retreat on the notion of a first U.S. interest rate decrease as early as March, the dollar held near to its best level against the euro on Thursday for the first time in seven weeks.

Despite a drop in U.S. Treasury yields, the yen managed to hold onto its overnight gains as investors flocked to safer assets due to problems at local U.S. lender New York Community Bancorp.

The U.S. dollar index, which compares the value of the dollar to a basket of six important currencies, including the euro and the yen, fell 0.07% to 103.54 in early Asian trading, retreating slightly from its 0.19% rise on Wednesday.

It is still not far from the recent peak of 103.82, which was reached on Tuesday of last week and Monday of this week and hadn’t been seen since December 13.

The dollar has benefited from U.S. economic data that indicates the Fed may postpone raising interest rates for longer.

Overnight, Powell offered the currency an additional boost by stating that a cut in March was ‘not the base case.’

Powell made these remarks at a press conference after Fed officials kept interest rates unchanged but removed a long-standing allusion to potential future increases in borrowing costs. ‘I don’t think it’s likely the committee will reach a level of confidence by the time of the March meeting’ to ease policy, ‘but that’s to be seen,’ Powell said.

After initially pricing in a 59% chance that the Fed would lower rates in March, traders are now pricing in a 38% chance. It decreased from 89% one month prior.

The euro fell 0.06% to $1.0811, moving closer to its lowest level since December 13 at $1.0795 on Wednesday.

In relation to the Japanese yen, the dollar fell 0.06% to 146.81 yen, compounding the 0.47% loss on Wednesday.

The 10-year Treasury yield was at roughly 3.95% on Thursday, down from Tuesday’s closing level of 4.057%, even in spite of Powell’s less dovish tone. The currency pair usually tracks U.S. long-term yields.

Prior to the Fed announcement, U.S. yields—which are inversely correlated with bond prices—had fallen as a result of a sharp decline in New York Community Bancorp shares following the company’s dividend cut and unexpected loss.

Amid worries about the stability of other local lenders, investors seized onto US Treasury bonds.

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