US Dollar hangs tight, waiting for Fed to drop more hints on policy
Frankfurt (May 24) The dollar stabilized against the yen and the euro early Tuesday, as many investors remained reluctant to take large positions as the next course for interest-rate policy looms.
The greenback USDJPY, +0.41% was changing hands at ¥109.66, up 0.4% and compared to ¥109.24 late Monday in New York. The euro EURUSD, -0.3832% was at $1.1181 from $1.1221 late Monday, down 0.4% against its U.S. counterpart.
The WSJ Dollar Index BUXX, +0.18% a measure of the dollar against a basket of major currencies, was up 0.11% at 87.60.
“Some investors are avoiding taking one-sided positions,” said Toshihiko Sakai, senior manager of the forex and financial products trading division at Mitsubishi UFJ Trust and Banking.
“The biggest mover for the dollar is whether the U.S. (Federal Reserve) will take action,” said Sakai. “The Fed has corrected low market expectations (for an early rate increase), but we still don’t know whether the Fed will make such as move.”
There is still some doubt that the Fed will take action given the uncertainty surrounding the referendum on the U.K.’s membership in the European Union, added Sakai. The Fed next meets June 14-15.
The greenback has gained upward momentum since the Fed’s April meeting minutes published earlier this month suggested officials were giving serious consideration to a June interest-rate increase.
In the latest round of comments on Monday, Federal Reserve Bank of St. Louis President James Bullard said more factors favored a gradual rate increase versus keeping them steady.
But due to a lack of decisive trading cues, investors are shifting attention to U.S. May jobs data due June 3 and Fed chairwoman Janet Yellen’s speech this Friday and again on June 6.
The currency market may still need some convincing that the Fed is ready to move.
“As we have said before, the probability of the Fed hiking the rates during June are minuscule, but we are still not convinced that the Fed will make a blunder while the threat of the Brexit looms,” said Naeem Aslam, chief market analyst with Think Forex UK Ltd. “There is too much risk emanating from china’s economy and retreating in the commodity market.”
Brexit refers to Britain’s possible exit from the European Union, due for a vote in a June 23 referendum.
The dollar’s rise against the yen is over for now, said Takuya Kanda, a senior researcher of Gaitame.Com Research Institute. “It wouldn’t be a surprise to see another round of adjustment toward ¥108.00.”
Source: MarketWatch
