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Friday, June 2, 2023

Dollar slumps as recent sharp gains could delay Fed hike

NEW YORK: The dollar fell across the board on Monday as investors fretted that its recent rapid rise could prompt the Federal Reserve to be a little more cautious about raising interest rates this year.

The greenback has risen about 24 percent against a major currency basket since May, and it could become a key issue at this week’s Fed monetary policy meeting.

“The concern … is that the dollar has gone too fast too soon, and this could affect the Fed’s inflation goal,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

There are also lingering concerns about the US labor market, said Brian Dolan, head market strategist at online brokerage platform DriveWealth in Chatham, New Jersey.

“While much has been made of the US recovery, recent data, apart from large gains in monthly jobs numbers, suggest there is still plenty of room for caution,” Dolan said. US wages remain stagnant as inflation and both consumer and business confidence have been slipping recently, he added.

The dollar index was down 0.7 percent at 99.597.

The market is not expecting any change to the Fed’s interest rate, which has held at 0.00-0.25 percent in the last six years. Instead, investors will focus on the language of the Fed’s guidance about future policy moves.

The expectation is that the Fed will drop the word “patient” to describe its approach to raising rates later this year.

That would set the central bank on track for a rate increase as early as the June meeting.

The dollar was also pressured against the euro after Italy’s central bank governor, Ignazio Visco, expressed concerns about the pace of the single currency’s fall to 12-year lows as the European Central Bank launched quantitative easing.

Visco, a member of the ECB Governing Council, told a conference on Saturday that the euro had weakened faster than expected since the ECB first hinted at the program of money-printing last year.

After short-term German government bond yields sank deeper into negative territory and the euro slid another 3 percent in the first week of QE, he said there were risks that the program could overshoot its goal, as well as fuel an excessive rise in asset prices.

The euro gained 0.9 percent against the dollar to $ 1.0585 in afternoon trading.

The dollar was little changed against the yen at 121.39.

Copyright Reuters, 2015

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