In line with a decline in Treasuries rates, the dollar weakened against a basket of currencies on Tuesday. This was due to investors waiting for important U.S. economic data ahead of the Federal Reserve’s monetary policy meeting the following week.
After dropping more than 0.5% in the previous session due to a decline in U.S. Treasury rates, the dollar index was last seen at 105.57.
The Fed Chair Jerome Powell’s comments this week that tighter financial conditions may be warranted given the strength of the US economy helped to bolster the greenback. This caused the benchmark 10-year yield to rise over 5% and reach its highest level since July 2007.
Now, when the Fed meets on October 31–November 1, the focus of the market is on some of the final bits of US economic data. The purchasing managers’ index (PMI) flash release is scheduled for later on Tuesday, and the gross domestic product is scheduled for Thursday.
According to Matt Simpson, senior market analyst at City Index, the PMI data may establish expectations in the market before the GDP announcement.
According to him, “if the data leans far enough one way, it could prompt a strong dollar rally or breakdown with the Fed in a blackout period,” which refers to the time leading up to the policy meeting when central bank officials are not allowed to speak to the public.
At its meeting next week, the Fed is anticipated to keep rates unchanged.
After hiking its benchmark interest rate by 25 basis points in September, the European Central Bank is likewise anticipated to keep interest rates unchanged at its meeting on Thursday.
On Monday, the euro held its gains against the dollar, remaining largely stable at $1.0665.
In the meantime, the battered yen saw some little respite from the dollar’s collapse. The Japanese yen recently traded flat vs the US dollar at 149.77 after hitting the vulnerable 150-level on both Friday and Monday.
The 150 barrier is viewed by traders as a potential red line that might be crossed by Japanese authorities to intervene in the currency market.
But if the US data this week is very positive, the yen may start to creep back into the danger zone.