NEW YORK: The dollar fell slightly against a basket of currencies on Wednesday, but remained near the two-decade high reached in the previous session as traders awaited an interest rate decision from the U.S. Federal Reserve more late in the session.
An ad hoc policy meeting of the European Central Bank allowed the euro to rise slightly, maintaining pressure on the American currency.
A warmer-than-expected U.S. inflation report on Friday bolstered expectations that the Fed will raise interest rates more than expected, helping to boost investors’ appetite for riskier assets, thus lifting the safe-haven dollar.
According to Refinitiv’s Fedwatch tool, almost 90% are expected to rise by 75 basis points following a two-day meeting of the US central bank’s Federal Open Market Committee (FOMC) on Wednesday. .
But with such an interest rate hike already expected, the dollar could struggle to appreciate after the Fed’s move, some analysts said.
“The slight retracement in the Broad Dollar this morning is consistent with the idea that market expectations have gotten out of hand for the Federal Reserve and that the most likely outcome for US rates markets is disappointment,” Simon Harvey said. , head of FX analysis at Monex Europe.
Against a basket of currencies, the dollar was down 0.06% at 105.23, but close to the 20-year high of 105.65 hit on Tuesday.
The dollar found little support in data that showed U.S. retail sales unexpectedly fell in May as motor vehicle purchases fell amid widespread shortages and record oil prices. fuel have moved spending away from other goods.
The euro rose against the greenback earlier in the session following news of a surprise ECB meeting, which some traders hoped would resolve the risk of fragmentation in the region, but fell. gave up most of those gains in a short time.
The so-called risk of fragmentation refers to the fear that the ECB’s monetary policy actions will affect the 19 countries that make up the euro zone differently, with some countries seeing a significant rise in bond yields disconnected from economic fundamentals.
The European Central Bank will distort the reinvestment of maturing debt to help more indebted members and design a new instrument to stop fragmentation, it said on Wednesday.
“The ECB meeting provided very little additional information compared to last week’s policy statement,” said Harvey of Monex Europe.
“Markets now know that the central bank is going to look into the anti-fragmentation tool more quickly, but beyond that, today’s announcement really didn’t deliver anything tangible for excite the euro bulls,” he said.
The euro rose 0.08% to $1.0422, after hitting 1.0507 earlier in the session.
Rising U.S. rates versus Japanese yields at record lows weighed on the yen, which hit a new 24-year low of 135.60 to the dollar early in the session before erasing losses to settle. trade about 0.8% against the greenback.
The pound on Wednesday recovered from its lowest level against the dollar since March 2020, rising 0.77% to $1.2089, but the reprieve may prove temporary as Britain’s economic growth slows and a potential trade conflict with the European Union weighing on the currency.
In cryptocurrencies, bitcoin slid to a fresh 18-month low of $20,076.05, before paring losses to trade down 3.62% at $21,288.46, taking with it higher prices. smaller tokens and worsening a market crash triggered by crypto lender Celsius this week, freezing client withdrawals.