US dollar declined on Wednesday. What about the euro?
The dollar plummeted today as market participants contemplated whether the Federal Reserve should continue hiking rates or move on a dovish course. Consequently, the dollar index dropped by 0.128% to 101.710 against the basket of six currencies after already shaving off 0.245% in the previous session. The US jobs data was not as positive as analysts expected. Some traders fear that the country’s economy might end up in recession if the central bank continues its aggressive policy. The problems in the banking sector also contributed to such fears.
The report showed that in the United States, job openings decreased for a third consecutive month in March. On the other hand, layoffs surged to the highest level in more than two years. Despite this news, the markets widely expect the Federal Reserve to hike interest rates by 25 basis points later on Wednesday. Investors are also waiting for hints to ascertain whether the agency plans to further tighten or wants to pause for a while.
Moh Siong Sim, the Bank of Singapore currency strategist, noted that forex markets think that the Fed will cut the rate towards the end of 2023. The problems in the US banking system weigh on the economy. However, Moh also added that the officials might try to slow the process of lowering rates, especially considering the new data. According to the report, inflation is still higher than the Fed’s 2% target, and even though the American economy is slowing, it’s not enough to bring the soaring prices down.
What do the other analysts say about Fed?
The Fed doesn’t seem ready to announce the end of tightening for this cycle – stated Blerina Uruci, the chief US economist at T. Rowe Price, adding that the central bank would take into account banking sector struggles. However, it would likely still conclude that a combination of a well-capitalized banking sector and the market measures announced thus far would enable it to continue fighting inflation and eventually lower it to its 2% target.
On Wednesday, the common currency soared by 0.23%, exchanging hands for $1.1024. It also jumped by 0.2% overnight. Traders are focusing on the European Central Bank’s policy meeting that is scheduled on Thursday. New data showed recently that in Europe, inflation accelerated in April, but underlying price growth slowed. That was unexcepted and strengthened the bets about the ECB delivering a smaller interest rate hike.
Meanwhile, the Australian dollar continued rallying. It climbed up by 0.11% to $0.667 on Wednesday. The Reserve Bank of Australia increased the cash rate to 3.85%, declaring that it might deliver more rate hikes to hinder the soaring inflation. This news supported the Aussie dollar. New Zealand’s currency rose as well, gaining 0.40% to $0.623.
Moreover, the British Pound added 0.21% on the day, trading at $1.249. The Japanese yen also moved into green territory, gaining 0.40%. It exchanged hands at 136.01 per USD at last, recovering some of its losses from last week. The yen struggled after the Bank of Japan decided to leave its ultra-loose monetary policy unchanged.