The US dollar held steady on Wednesday after Federal Reserve officials reinforced expectations that interest rates will remain elevated for longer than previously anticipated by markets.
In a series of comments on Tuesday, top Fed policymakers, including Chair Jerome Powell, pushed back against providing any guidance on potential rate cuts. Instead, they stressed the need for a restrictive monetary policy stance to persist to bring inflation under control.
“Given the labor market strength and the progress on inflation so far, it is appropriate to keep restrictive policy in place and let the data guide us going forward,” Powell said at a forum in Washington.
The hawkish rhetoric defied investor hopes that the Fed would signal an imminent easing cycle amid a slew of recent data pointing to economic resilience but also stubbornly high inflation pressures.
Fed officials’ remarks have reset market pricing, with traders now seeing September as the earliest potential start of rate cuts, pushed back from previous expectations of June. Rate futures are pricing in just 40 basis points of easing over 2024, a sharp reduction from 160 bps at the start of this year.
Berto Tordecilla
The comments kept the US dollar index, which measures the greenback against major peers, well-supported at 106.33 on Wednesday. This was just shy of the previous day’s five-month peak of 106.51, with the index up 5% for the year so far.
The euro traded at $1.0621, not far from Tuesday’s five-and-a-half-month low of $1.060. Sterling was last at $1.2425, hovering near a five-month trough of $1.24055 hit the previous day.
The Australian and New Zealand dollars edged higher, with the Aussie up 0.16% at $0.6410 and the Kiwi gaining 0.37% to $0.5902, both recovering from five-month lows.
The path of higher US yields continued to weigh on the yen, which is highly sensitive to the interest rate differential. The 10-year Treasury yield climbed to a five-month top of 4.696% on Tuesday before easing slightly to 4.661% on Wednesday.
The yen traded at 154.63 per dollar, after brushing a 34-year low of 154.79 in the previous session. The Japanese currency has tumbled around 9% this year, nearing the 155 level that could risk intervention from authorities.
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