The U.S. dollar gained ground on Wednesday, recovering after recent weakening in anticipation of a series of appearances by Federal Reserve members.
Federal Reserve hearings to follow
The dollar received a slight boost late Tuesday after Minneapolis Fed President Neel Kashkari indicated that both persistent inflation and a robust economy could persuade the central bank to keep interest rates unchanged for the remainder of the year.
The future path of U.S. interest rates continues to dominate market attention, and with no significant U.S. economic data for the rest of the week, the outlook for policymakers carries extra market weight.
Fed Chairman Jay Powell mainly ruled out a larger tightening of monetary policy last week, although there is still a great deal of uncertainty regarding when the first cut will be.
This Wednesday, investors will be paying close attention to statements from the Fed’s policymakers: Vice Chairman Philip Jefferson, Governor Lisa Cook, and Boston Fed President Susan Collins.
Morgan Stanley (MS) is now confident that the Fed will begin cutting interest rates in September, down from its previous estimate in July, and continues to consider three 25 basis point rate cuts for the remainder of the year.
Germany’s economy continues to struggle
In Europe, the major market pair EUR/USD lost about 0.2% to the 1.0736 level after learning that Germany’s industrial production fell 0.4% in March on a month-on-month basis.
The European Central Bank has indicated a rate hike in June, although there continues to be considerable uncertainty about what will happen to monetary policy after that month.
GBP/USD is down 0.3% at 1.2473 ahead of the Bank of England’s next meeting on Thursday.
While the UK central bank is not expected to change interest rates this week, there is speculation that it could steer markets toward a cut as early as next month, shortly after the expected ECB hike on June 6.
Yen loses ground despite intervention rumors
From Asia, USD/JPY is up 0.4% to 155.35, and the yen is wobbling, approaching 34-year highs again, despite government officials continuing their alerts about possible further intervention in currency markets.
Bank of Japan Governor Kazuo Ueda said on Wednesday that the central bank may take monetary policy action if the yen’s slide has a significant impact on prices, while the country’s Finance Minister Shunichi Suzuki reiterated the threat that authorities are ready to react to overly volatile moves in the currency market.
AUD/USD lost 0.4% to 0.6568, extending the previous day’s steep declines after the Reserve Bank of Australia adopted a less hawkish approach than expected.
The Reserve Bank of Australia kept interest rates unchanged and warned that inflation will stabilize in the coming months, but did not threaten to raise them again, a scenario that had already been factored into the Australian dollar’s pre-meeting price.
