US dollar near 2-month low in early trade

5 Apr 2023 , 09:12 AM

On Wednesday, the U.S. dollar remained close to two-month lows as dismal economic data supported theories that the Federal Reserve is nearing the end of its cycle of monetary tightening.

Jobs available in the United States fell to their lowest level in nearly two years in February, according to data released yesterday, signaling that the labour market was finally loosening up.

February saw a decrease in job opportunities, a gauge of labour demand, of 632,000 to 9.9 million, according to the monthly Job Openings and Labor Turnover Survey, or JOLTS report.

After falling 0.5% overnight, the dollar index, which compares the value of the dollar to six other currencies, fell to 101.43, a new two-month low.

The euro increased by 0.12% to $1.0965, staying close to Tuesday’s two-month highs. Just shy of the ten-month peak it reached on Tuesday, sterling was last trading at $1.2509, up 0.08% on the day.

Ahead of a Reserve Bank of New Zealand policy announcement later in the day, the kiwi increased 0.08% to $0.632.

With only a 25 basis point rate increase, the central bank is anticipated to moderate the rate of monetary tightening. Investors will carefully read the accompanying commentary for any indications that the tightening cycle may be coming to a halt.

The markets adjusted their forecast for rate increases as a result of the jobs reports being less than expected. According to the CME FedWatch tool, markets are currently pricing in a 59% chance of the Fed keeping interest rates unchanged at its next policy meeting in May. Markets had a 43% likelihood of pricing in the Fed not hiking interest rates the previous day.

According to a Reuters survey of foreign exchange experts, when the difference between the U.S. and other countries’ interest rates closes in 2023, the U.S. dollar would likely drop versus most other currencies, putting it on the defensive after a multi-year run.

The two-year Treasury yield, which normally fluctuates in tandem with forecasts for interest rates, was up 1.4 basis points at 3.848% on the U.S. bond market after falling 14 basis points on Tuesday.

After falling by 9 basis points overnight, the yield on 10-year Treasury notes increased 1.1 basis points to 3.348%.

The president of the Federal Reserve Bank of Cleveland, Loretta Mester, stated on Tuesday that even if the economy appears to be slowing down, the central bank is still likely to raise interest rates in the future.

For feedback and suggestions, write to us at [e-mail]