The dollar strengthened on Wednesday on rising government bond yields, although the pound gained against the greenback after UK inflation remained above 10 percent in March and increased pressure on the Bank of England to continue raising rates.
The dollar index, which tracks the currency against a basket of its peers, rose 0.206 percent as markets grow more skeptical that the Federal Reserve will cut interest rates later this year.
Yields on two-year Treasury bonds, which are sensitive to US Federal Reserve monetary policy expectations, rose 7 basis points to 4.269 percent after reaching a one-month high of 4.286 percent.
But the dollar’s gains were a “temporary reprieve,” said Bipan Rai, head of FX strategy North America at CIBC Capital Markets in Toronto.
“We still think the dollar will continue to come under significant pressure in the medium to long term. And that ties in with our view that the Fed is likely to raise again and that’s it.”
Futures prices show an 85.7 percent chance that the Fed will raise rates by 25 basis points when policymakers conclude a two-day meeting on May 3, according to CME’s FedWatch Tool. But the likelihood of a rate cut in December has narrowed significantly this week.
The dollar has been on the defensive for some time with the unresolved debt ceiling in Congress and the migration of deposits in the US banking system remains a concern, Rai said.
Sterling last traded at $1.244, up 0.13 percent on the day, as the dollar rose 0.46 percent against the price-sensitive yen at 134.71, after briefly trading above the 134.71 mark for the first time in a month. 135 to have come.
The immediate outlook for the dollar isn’t particularly optimistic given that central banks abroad have more to do than the Fed during the rest of the year, said Joe Manimbo, senior market analyst at Convera in Washington.
“If core inflation takes longer to return to the Fed’s target of 2 percent, then the Fed may have to raise rates more than once during the year,” he said, adding that the slide from the dollar could stop or slow down.
“We are currently in a very choppy state for FX until we get more clarity on the policy outlook.”
Expectations for higher official rates in one market relative to those elsewhere tend to drag money market and government bond yields higher, drawing cash to a country while also boosting the currency, at least in the short term.
Data from Wednesday showed UK consumer price inflation fell less than expected to 10.1 percent in March from 10.4 percent in February, meaning Britain has the highest consumer inflation rate in Western Europe.
“It seems that the UK CPI reading above 10 percent was the culprit. This has revived concerns that interest rates will remain high for longer in the UK – and Europe,” said Fawad Razaqzada, market analyst at City Index.
Deutsche Bank revised expectations for UK rates on Wednesday by including two more rate hikes of 25 basis points by the Bank of England. Morgan Stanley is now predicting one, with a second chance.
Currency bid prices at 14:42 (1842 GMT)
Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid
Previous change
Session
Dollar index 101.9200 101.7200 +0.21 percent -1.517 percent +102.2300 +101.6500
Euro/dollar $1.0958 $1.0974 -0.15 percent +2.26 percent + $1.0984 + $1.0918
Dollar/Yen 134.7050 134.1000 +0.44 percent +2.73 percent +135.1300 +133.9600
Euro/Yen 147.61 147.17 +0.30 percent +5.21 percent +147.8600 +147.0500
Dollar/Swiss 0.8974 0.8962 +0.16 percent -2.93 percent +0.9002 +0.8959
Sterling/dollar $1.2440 $1.2425 +0.14 percent +2.88 percent + $1.2474 + $1.2393
Dollar/Canadian 1.3456 1.3388 +0.51 percent -0.69 percent +1.3458 +1.3386
Aussie/Dollar $0.6716 $0.6729 -0.17 percent -1.46 percent + $0.6741 + $0.6690
Euro/Swiss 0.9834 0.9831 +0.03 percent -0.62 percent +0.9848 +0.9826
Euro/Sterling 0.8806 0.8831 -0.28 percent -0.43 percent +0.8838 +0.8792
New Zealand dollar/dollar $0.6204 $0.6206 -0.06 percent -2.32 percent + $0.6225 + $0.6174
Dollar/Norway 10.5690 10.4730 +1.02 percent +7.81 percent +10.5840 +10.4820
Euro/Norway 11.5779 11.4795 +0.86 percent +10.33 percent +11.5960 +11.4735
Dollar/Sweden 10.3422 10.3135 +0.13 percent -0.63 percent +10.3750 +10.3008
Euro/Sweden 11.3277 11.3132 +0.13 percent +1.60 percent +11.3362 +11.3029
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(This story has not been edited by News18 staff and was published from a syndicated news agency feed)
