NEW YORK (AP) – The dollar rose slightly on Wednesday as traders held back from making big bets ahead of the release of the minutes of the latest US Federal Reserve meeting, in which it took a stance. tougher, looking for signs of when monetary policy might change.
The dollar has been supported by the pace of the US economic recovery, which has advanced faster than places like Europe or Japan, helped by an early launch of vaccines to curb the COVID-19 pandemic, along with massive amounts of fiscal stimulus.
One of the main drivers of the exchange rate in the second half of the year will be the divergence of central banks that begin to reduce that stimulus, based on solid economic fundamentals, and those that do not, said Win Thin, global head. exchange strategy. at Brown Brothers Harriman.
The dollar index, which measures the dollar against a basket of even currencies, rose 0.225% to 92.747, consolidating near its recent 3-month high, even as US bond yields fell to their lowest levels since February. .
“Which brings us back to the anticipated economic performance of the United States and the eventual withdrawal of the stimulus by the Fed,” Thin said.
The minutes of the Fed’s June monetary policy meeting, scheduled for later Wednesday, could shed some light on the timing for slowing its pandemic-induced bond buying spree.
“Investors will want to know more about the likely timing of any phasing out of QE, and any evidence that officials engaged in concrete discussions about the pace and timing of a possible stimulus reduction can be seen as a stiff surprise,” he said. Valentin Marinov, Director of Research for G10 FX at Credit Agricole, said.
“Second, currency investors will focus on any discussion of an even earlier rate takeoff, with rate markets already attaching a near 90% probability to three Fed rate hikes in the next two years.” Marinov added.
The euro hit a three-month low against the dollar on Wednesday after German data cast doubt on the strength of the economic recovery.
The single European currency changed hands at $ 1.1800, having previously hit a three-month low of $ 1.1798. Against the yen, it fell to 130.66 yen, approaching its two-month low of 130.05 set on June 21.
Investor sentiment in Germany, the euro zone’s largest economy, fell sharply in July, although it remained at a very high level, the economic research institute ZEW reported.
Separate data showed that orders for products made in Germany posted their biggest drop in May since the first lockdown in 2020, hurt by lower demand from countries outside the euro zone.
Other risk-sensitive currencies were hit after oil prices plummeted when OPEC producers canceled a meeting when major players were unable to reach an agreement to increase supply.
The Australian dollar fell 0.07% to $ 0.7489, stabilizing after a rebound on Tuesday as the Reserve Bank of Australia took a first step toward reducing stimulus.
The RBA announced a third round of its quantitative easing program, albeit smaller in size than the previous two rounds, while retaining the April 2024 bond for its three-year yield target of 0.1%.
The Japanese yen traded little changed at 110.745 yen to the dollar, still holding on to gains from its 15-month low of 111.64 touched last week.
In cryptocurrencies, bitcoin was up 1.7% to $ 34,826.88 and ether was up 3.1% to $ 2,381.41.
(Reporting by John McCrank; additional reporting by Ritvik Carvalho in London; Editing by Alexander Smith, Hugh Lawson and Andrea Ricci)