Dollar stumbles as safety trade fades, but Fed focus will limit losses By Investing.com
By Yasin Ebrahim
Investment – The dollar’s bright start to the week faded on Tuesday as easing Russian-Ukrainian tensions prompted investors to exit the greenback’s safe-haven arms, but the potential for new clues on higher Fed frontloading rake will keep losses in check.
The , which measures the greenback against a trade-weighted basket of six major currencies, fell 0.37% to 95.99 as the flight to safety faded after Russia reportedly withdrew. some of his troops from the Ukrainian border.
But new hopes for a de-escalation of tensions won’t keep the dollar stuck for long. Minutes from the Fed’s January meeting, due out on Wednesday, will touch on monetary policy and the prospect of aggressive rate hikes ahead.
“[W]We expect the Federal Reserve’s tightening frontloading rhetoric to put a floor under the dollar in the near term, even as geopolitical risk is assessed,” ING said in a note.
The minutes will come just as bets on the Fed’s frontloading rate hikes by raising its benchmark interest rate by 50 basis points at its meeting next month continue to grow.
The recent jump in rate hike expectations was spurred by searing inflation showing that price pressure continues to trend toward multi-decade highs, and hawkish remarks from St. Louis Fed Chairman James Bullard. more of our planned move from accommodation than we would have done before. We were surprised by the rise in inflation. Bullard told CNBC’s Steve Liesman during an interview earlier this week.
The St. Louis Fed president, who tends to lean more towards monetary policy, previously called for interest rates to be raised a full percentage point by July 1.
“I would like to see 100 basis points in the bag by July 1,” Bullard said in an interview with Bloomberg last week. “I was already more hawkish but I raised considerably what I think the committee should do.”
Markets were quick to take notice, with 2-year Treasury yields, which are heavily influenced by Fed policy action, anticipating a 100 basis point rise.
The minutes, however, predate Bullard’s hawkish remarks and the searing inflation report that led to a reassessment of the Fed’s aggressive rate hike bets, and so may offer little information.
“[T]Here is a limit to which any policy inferences drawn from the minutes of the January meeting may be relevant in formulating expectations for the March meeting, Scotiabank Economics said.
“The minutes will be significantly out of date on arrival as we have since had an explosive jobs report (+467,000 in January with +709,000 revisions from the previous two months) and an inflation report from CPI stronger than expected (7.5% y/y).
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