Dollar slips in early trade as Fed officials hint end of hiking cycle

11 Jul 2023 , 12:19 PM

Despite trading in a narrow range ahead of a crucial U.S. inflation report, the dollar declined on Tuesday after Federal Reserve members suggested that the central bank was nearing the end of its tightening cycle.

On Monday, a number of Fed members stated that while the central bank’s current cycle of tightening monetary policy is almost complete, further interest rate increases are likely necessary to reduce the inflation rate, which is still very high.

In early Asian trading, the comments caused the dollar to fall to a two-month low of 101.88 against a basket of currencies as traders reduced their projections for how far U.S. interest rates will rise.

Since the Fed started its tightening cycle last year, U.S. interest rate expectations have been a major factor in the direction of the dollar.

Meanwhile, the euro rose 0.03% to $1.1004 and sterling reached a new 15-month high of $1.2869.

Market participants are now paying close attention to U.S. inflation statistics due out on Wednesday, which will shed additional light on the Fed’s effectiveness in combating persistently high consumer prices.

Americans’ expectations for near-term inflation are dropping, according to a New York Federal Reserve survey released on Monday. Last month, Americans predicted the weakest near-term inflation gains in just over two years.

Since both are frequently viewed as liquid proxies for the Chinese yuan, gains in the two Antipodean currencies relative to the dollar were constrained by China’s sputtering economic recovery.

The offshore market yesterday saw the yuan slightly higher at 7.2254 to the dollar.

Data released on Monday revealed that while consumer prices were on the verge of deflation, producer prices in China decreased at their highest rate in more than seven years in June.

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