The Federal Reserve’s dovish remarks continued to weigh on the dollar on Wednesday, as traders anticipated the central bank’s policy meeting minutes, which were scheduled for later in the day, in hopes of learning more about its forecast for interest rates.
In recent days, a number of Fed officials have hinted that the US central bank might not need to tighten monetary policy as much as first believed.
Neel Kashkari of the Minneapolis Fed and Raphael Bostic of the Atlanta Fed both made similar statements on Tuesday, stating that the central bank did not need to increase borrowing prices any further.
On Wednesday, the US dollar was trading close to a two-week low versus a group of currencies, with a last value of 105.80.
The euro last purchased $1.0604, not far from Tuesday’s more than two-week high of $1.0620, while sterling reached a three-week high of $1.23035.
“The Fed is moving away from raising rates further, and by December, it may also abandon its tightening bias,” noted Thierry Wizman, the global FX and interest rate strategist at Macquarie.
Following the dovish remarks from the Fed, U.S. Treasury yields have also decreased; on Tuesday, the two-year yield—which often indicates expectations for near-term interest rates—hit a one-month low of 4.9260%. The last value was 4.9990%.
Now, attention will be on the minutes of the Fed’s September policy meeting, which are expected to be released later on Wednesday and may provide further information on its view for interest rates. The next day is when U.S. inflation data is due.
According to Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA), “I think markets will be particularly interested in whether or not the (Federal Open Market Committee) will follow through with the extra 25-basis-point hike forecast in (its) latest dot plot.”
“Any comments that are perceived to be slightly dovish, I think the unwind of yields can continue and that can weigh down on the U.S. dollar more.”
The New Zealand dollar reached a two-month high of $0.6056, buoyed marginally by a report indicating China is considering additional stimulus measures, but they later gave back those gains. The Australian dollar surged to a more than one-week high of $0.6445.
The two Antipodean currencies are frequently employed as yuan liquid substitutes.
The Kiwi dropped 0.31% to $0.6029, while the Aussie was down 0.12% at $0.64235.
In order to help the economy fulfil Beijing’s yearly growth objective, the Chinese government is planning to introduce further stimulus in 2023, which will result in a larger budget deficit.
Given that the government has been hesitant to implement any significant stimulus this past year, markets are still quite wary about whether or not the government will deploy a large-scale stimulus. Therefore, I believe that markets are rather dubious about the veracity of that news,” CBA’s Kong stated.
“If that report is true and Chinese officials come out with a big stimulus package, that will obviously boost (the yuan) and currencies linked to the Chinese economy.”
In both the onshore and offshore markets, the value of the yuan remained relatively stable versus the dollar, closing at 7.2942 per dollar on the onshore market.