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Dollar Stops As Rate Hike Fears Decreasing, Fed Raises Minutes

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SINGAPORE – The dollar remained stuck in neutral on Monday, after hitting a pothole as last week’s mixed stock market of US labor data allayed investor fears about an accelerated end to monetary stimulus.

While the June job creation figure beat forecasts, unemployment rose and labor force participation did not budge, suggesting positive progress, but room for the Federal Reserve to wait before cutting back on asset purchases. or raise rates.

Bonds rallied, equities rose, and the dollar fell on the data, falling further against risk-sensitive Australian and New Zealand dollars and the rate-sensitive yen.

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It leveled off with slight but wide gains in the Asia session, up about 0.2% against the kiwi, which stood at $ 0.7017, gaining about 0.1% at 111.13 yen and up about the same margin at $ 1.1853 per euro.

“The report was mixed enough to prevent the Fed from announcing a gradual reduction soon,” Westpac analyst Imre Speizer said by phone from Christchurch.

“I think the market was thinking that you would get a signal at (the) Jackson Hole meeting in August. This report says that could be a little early, ”he said.

The dollar index was flat at 92.334, after falling to that level on Friday. But with a 2% rise in the three weeks since the Fed surprised investors with projected gains for 2023, analysts believe the dollar has room to rise a bit more.

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“Since the Fed’s tough tilt in June, the dollar has been increasingly sensitive to the strength of domestic data, while some DM and EM pairs are still battling COVID outbreaks,” Maybank analysts in Singapore said. in a research note.

“As such, this strength in the dollar may last a bit longer and an optimistic risk climate may not be entirely detrimental to the dollar at this time.”

Elsewhere, sterling was 0.1% softer at $ 1.3818 and emerging market currencies in Asia made small gains to catch up with the dollar’s slide on Friday.

MINUTES

Traders are focusing this week on the minutes of the Fed’s June meeting, scheduled for Wednesday, and Australia’s central bank meeting, and both have the potential to wake up months-trading coins in the middle. the uncertainty surrounding the political outlook.

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“More information on when the FOMC could reduce its asset purchases can boost US interest rates and the dollar,” said Joe Capurso, an analyst at the Commonwealth Bank of Australia, referring to the Federal Open Market Committee that sets rates.

“It may also be further proof that the FOMC’s inflation outlook is changing. In particular, analysts will look for signs that the FOMC is less confident that the rise in inflation will be transitory, ”he said. “Or that the FOMC’s tolerance for overshooting inflation is decreasing.”

Also on the horizon this week is the meeting of the Reserve Bank of Australia (RBA) on Tuesday, which has markets on fire as the central bank has signaled a decision on the fate of its bond buying program and its target of performance.

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Analysts said that anything that looks like a decline from the hitherto dovish RBA and the Aussie may rise, while the Aussie could slide if the cautious tone is maintained.

Changes in the cash rate are not likely, but economists expect the three-year yield target to remain at the April 2024 bond, without spreading to the November 2024 bond line, and that the RBA Take a flexible approach to buying bonds.

Cryptocurrencies were offered on Monday, with bitcoin below its 20-day moving average at $ 34,119 and ether down 3% to $ 2,252.

US markets are closed on Mondays for the Independence Day holiday.

(Reporting by Tom Westbrook; Editing by Jacqueline Wong and Sam Holmes)

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In-depth reports on the economics of innovation from The Logic, presented in association with the Financial Post.

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