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Wednesday, 22. May 2024

Dollar steadies post-Fed comments; yuan unaffected by inflation


On Thursday, the U.S. dollar traded within a narrow range as traders processed relatively less dovish comments from policymakers overnight and anticipated forthcoming economic data releases from the United States.

During the night, numerous Federal Reserve speakers cited various reasons for feeling little pressure to initiate policy easing in the United States promptly or to expedite the process once initiated.

“For the moment, policy remains well positioned, as we carefully assess the evolving data and outlook,” Susan Collins, Boston Fed President, said, adding that she believes it will be “appropriate to begin easing policy restraint later this year.”

The market currently reflects an 18.5% likelihood of the Fed commencing rate cuts in March, a notable decrease from the beginning of the year, as per CME Group’s FedWatch Tool. Traders are indicating a nearly 60% probability of a 25 basis point cut in May.

“The markets will be guided by central banks (but) ultimately, market participants will draw their own conclusions based on the fundamentals,” said Kyle Rodda, senior financial market analyst at Capital.com.

“With all of that said, the fundamentals remain strong in the U.S.”

The greenback experienced a slight decline after surpassing its 100-day moving average on Monday and Tuesday, marking the first instance since late November. This ascent was driven by Friday’s robust U.S. jobs data.

The dollar index, gauging the U.S. currency against six major counterparts, remained around the 104.00 mark.

Tony Sycamore, a market analyst at IG, anticipates that the U.S. currency will require a new impetus to challenge resistance levels at around 104.60 and 104.80. He suggests that the consumer price index (CPI) data for January, scheduled for release on February 13th, could be the initial opportunity for such a move.

The euro gained 0.1% against the dollar, reaching $1.0782, maintaining its position above its recent low of $1.0722 recorded on Tuesday, which was the lowest level since November 14th.

Sterling remained relatively unchanged at $1.26325.

The Japanese yen weakened by 0.25% against the greenback, trading at 148.53, following BOJ Deputy Governor Shinichi Uchida’s statement that the central bank is unlikely to raise interest rates aggressively, even after exiting negative interest rates.

The offshore yuan remained stable despite data indicating that China’s consumer prices experienced their sharpest decline in over 14 years in January.

Consumer prices (CPI) dropped by 0.8% in January compared to a year earlier, but they increased by 0.3% month-on-month, according to the data released.

Economists surveyed by Reuters had predicted a 0.5% decline year-on-year and a 0.4% increase month-on-month in consumer prices.

The producer price index (PPI) declined by 2.5% year-on-year in January, slightly better than the 2.6% decline anticipated in the Reuters poll.

“We expect the Chinese authorities to favour maintaining stability in the yuan going into the Lunar New Year holidays, with dollar/onshore yuan likely to remain within the 7.18-7.22 range for now,” said Wei Liang Chang, currency and credit strategist at DBS.

The currency received support as China’s stock market stabilized after the appointment of a new securities regulatory head, which boosted sentiment despite the disappointing data.

The offshore Chinese yuan remained mostly unchanged at $7.2100.

Bitcoin increased by 0.85% to reach $44,564.62 in the cryptocurrency market.


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