US greenback rises as market waits for Fed minutes

  • Dollar looks to Fed minutes for future direction
  • Euro hits 3-month low after disappointing ZEW
  • Graphic: World Currency Rates

NEW YORK, Jul 7 (Reuters) – The dollar was up slightly on Wednesday as traders held back large bets for clues as to if ahead of the minutes of the US Federal Reserve’s last meeting minutes released in which it took a more restrictive stance monetary policy could change.

The dollar was aided by the pace of the US economic recovery, which has been faster than in countries like Europe or Japan, aided by an early introduction of vaccinations to contain the COVID-19 pandemic, as well as massive fiscal stimulus.

One of the main drivers of forex in the second half of the year will be the divergence between central banks, which are starting to remove these incentives based on solid economic fundamentals, and those that are not, said Win Thin, global head of currency strategy at Brown Brothers Harriman.

The dollar index, which measures the greenback against a basket of peers, rose 0.225% to 92.747 and consolidated near its most recent 3-month high, despite US bond yields falling to their lowest level since February.

“That brings us back to expected US economic performance and the eventual withdrawal of stimulants by the Fed,” said Thin.

Minutes of the Fed’s monetary policy meeting in June, due later Wednesday, may shed some light on the timeline for easing their pandemic bond buying spree.

“Investors will want to know more about the likely timing of QE easing and any evidence that officials were having specific discussions about the pace and timing of a possible reduction in incentives can be seen as a Hawkish surprise,” said Valentin Marinov, director the G10 FX research at Credit Agricole said.

“Second, FX investors will focus on any discussion of an even earlier rate hike, as rates markets have already put three Fed rate hikes in the next two years at almost 90% probability,” added Marinov.

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 European common currency changed hands at $ 1.1800 after previously hitting a three-month low of $ 1.1798. It fell to 130.66 yen against the yen and approached its two-month low of 130.05 on June 21.

Investor sentiment in Germany, the largest economy in the Eurozone, fell sharply in July, but remained at a very high level, as the economic research institute ZEW announced. Continue reading

Separate data showed that May orders for goods made in Germany saw their biggest slump since the initial lockdown in 2020, hurt by weaker demand from outside the eurozone.

Other risk-sensitive currencies took a hit after oil prices plummeted when OPEC producers canceled a meeting when key players couldn’t agree to increase supply.

The Australian dollar fell 0.07% to $ 0.7489 and stabilized after a rally on Tuesday as the Reserve Bank of Australia took an initial step to reduce stimulus measures.

The RBA announced a third round of its quantitative easing program, albeit to a lesser extent than the two previous rounds, while maintaining the April 2024 bond for its three-year yield target of 0.1%. Continue reading

The Japanese yen was little changed at 110.745 yen per dollar and is still holding on to gains from its 15-month low of 111.64 hit last week.

In cryptocurrencies, Bitcoin rose 1.7% to $ 34,826.88 and Ether rose 3.1% to $ 2,381.41.

Reporting from John McCrank; additional coverage from Ritvik Carvalho in London; Editing by Alexander Smith, Hugh Lawson, and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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