Date: June 22, 2023
Place- New Delhi, India
On Thursday, the dollar wallowed near its one-month nadir against an array of currencies. This comes after Federal Reserve Chair Jerome Powell’s semi-annual testimony reaffirmed his usual stance, leaving no room for unexpected revelations.
Meanwhile, the sterling positioned itself near a year-long zenith, awaiting the Bank of England’s (BoE) decision on interest rates later in the day. An inflation report released on Wednesday is likely to keep the BoE on alert.
Powell informed Capitol Hill lawmakers on Wednesday that if the economy perseveres on its current trajectory, it’s reasonable to expect further U.S. rate increases. This echo of the central bank’s pronouncements at last week’s policy meeting left the U.S. dollar index at 102.09, just shy of its recent five-week trough of 102.00. This follows a nearly 0.5% dip in the previous session.
Asia saw thin trading due to public holidays in Hong Kong and China. The euro, in contrast, reached a one-month pinnacle of $1.0995, expanding upon Wednesday’s 0.65% leap.
Markets had already factored in significant hawkishness from Powell before his testimony, so his remarks didn’t introduce any extraordinary hawkish elements, observed Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).
At this point, markets remain unconvinced that the FOMC can manage two more rate hikes this year.
On a different note, the sterling declined 0.1% to $1.2755. Later on Thursday, the BoE is expected to raise interest rates for the 13th consecutive time, a day after inflation data exceeded forecasts. Traders are divided between anticipating a 25-basis-point or a 50bp hike.
British inflation remained steadfast at 8.7% in May, rebuffing market predictions, and thus the highest among any major economy.
Economists at ANZ note, The robust UK inflation data increased the likelihood of a larger hike than 25bp, a higher terminal rate, and rates remaining elevated for longer.
The dollar edged down 0.05% to 141.81 against the Japanese yen after reaching a seven-month peak of 142.37 yen in the last session.
The yen is facing renewed strain as the Bank of Japan (BOJ) upholds its ultra-dovish approach. BOJ board member Asahi Noguchi emphasized on Thursday that the central bank needs to continue its ultra-loose monetary policy to ensure wages, crucial to driving inflation to its 2% target, persist in their upward trend.
In Asia, the Chinese offshore yuan is hovering near Wednesday’s seven-month low, last trading at 7.1823 per dollar. Traders are still on the watch for more supportive measures from Beijing to bolster China’s faltering economic recovery.
Until confirmation of a stimulus package is received, the yuan will probably remain under downward pressure due to the soft outlook for the Chinese economy. This, in turn, is likely to be a headwind for the Aussie as well, CBA’s Kong predicted.
The Australian dollar lost 0.51% to $0.6762, and the kiwi fell by 0.2% to $0.6190.
In the realm of cryptocurrencies, Bitcoin appreciated over 1% to $30,339, moving above the $30,000 mark for the first time since April on Wednesday. This surge is attributed to BlackRock’s plan to establish a bitcoin exchange-traded fund (ETF) despite the sector facing U.S. regulatory scrutiny.
The storm clouds that had been gathering over crypto have begun to disperse in recent days due to a surge of institutional interest, Bloccelerate VC’s co-founder and CEO, Kate Laurence, pointed out.
The involvement of heavyweights such as BlackRock, Charles Schwab, Fidelity, and Citadel signifies a substantial commitment to the crypto sector, notwithstanding the recent regulatory crackdown.
The Wall Street Journal reported on Tuesday that EDX Markets, a crypto exchange backed by Citadel Securities, Fidelity, and Schwab, has commenced operations.
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