Dollar retains gains after Fed hawkish comments
LONDON (Reuters) – The dollar posted the most gains against the basket of currencies on Thursday after hawkish comments from the US Federal Reserve led markets to advance the likely timing of a policy tightening.
The euro climbed to $ 1.1848, having retreated from an overnight high of $ 1.1899 after failing to break resistance around $ 1.1910. The dollar also hit 109.75 yen, following a low of 108.71 on Wednesday, reversing what had been a bearish breakout to the downside.
Fed Vice Chairman Richard Clarida on Wednesday said the conditions for an interest rate hike could be in place by the end of 2022, paving the way for a decision in early 2023.
He and three other Fed members also signaled a decision to gradually cut bond purchases later this year or early next year depending on the labor market over the next few months.
“Clarida’s comments allow the dollar to remain well supported in payroll figures on Friday,” ING FX strategists Francesco Pesole and Chris Turner said.
“For today, the dollar may just find some stabilization in a fairly calm US timetable (the focus will be on jobless claims only).”
Predicting the jobs report with confidence remains tricky as the spread of the Delta variant and workforce bottlenecks disrupt the market.
Thus, the median forecast of the wage bill is 870,000 while the range of estimates extends from 350,000 to 1.6 million.
Wednesday’s mixed data added to the uncertainty as a surprisingly weak ADP private hiring report hit the highest reading yet for U.S. services.
Clarida’s comments led investors to forecast slightly higher odds of a late 2022 / early 2023 hike and a flattening of the Treasury yield curve as short-term yields rise.
Such a move would likely precede any tightening by the European Central Bank, which is struggling to bring inflation closer to its target.
In contrast, the Bank of England is set to shrink and may expand the schedule at a policy meeting later Thursday.
This outlook helped the pound rebound at the start of the year, although it has traded broadly sideways in the past two months. It was last pinned near support at $ 1.3884, after repeatedly failing to break through resistance above $ 1.3980.
All of these central banks are lagging behind the Reserve Bank of New Zealand (RBNZ), which appears likely to hike rates at its next policy meeting on August 18, making it the first in the developed world to move since the start of the pandemic.
On Wednesday, a very strong jobs report added to the case for a New Zealand tightening and sent the kiwi to a one-month peak of $ 0.7088 overnight, before falling. stabilize at $ 0.7041.
“The New Zealand economy has almost closed its output gap and is at risk of overheating if stimulus measures are not tightened,” said Imre Speizer, New Zealand strategy manager at Westpac. “Markets are fully anticipating a 25bp rate hike and are flirting with a 50bp chance.”
He recommended buying the kiwifruit on withdrawal at $ 0.7005, with a target of $ 0.7300.
Reporting by Ritvik Carvalho; edited by Barbara Lewis