The dollar was holding its ground on Thursday, underpinned after the minutes of the U.S. Federal Reserve’s latest policy meeting firmed bets for a rate hike this month, while a broad risk-off mood lent some support to the Japanese yen.
Minutes from the Fed’s June meeting released on Wednesday showed that the vast majority of policymakers expect further tightening in U.S. monetary policy, even as they agreed to hold interest rates steady last month.
That sent the dollar slightly higher alongside Treasury yields, while stocks slumped, as expectations grew that the Fed will resume its rate-hike campaign this month and that rates would stay high for some time to tame inflation.
The U.S. dollar index, which firmed 0.2% on Wednesday, edged 0.06% lower to 103.28.
“There were not too many major surprises with the Fed expected to hike later in July and that is a positive for the dollar,” said Niels Christensen, chief analyst at Nordea.
“They’ll still be data dependent so we’ll see what the jobs data brings,” Christensen added, citing Thursday’s labour market releases of jobless claims, ADP employment change and JOLTs and Friday’s payrolls report.
Markets are now pricing in an 85% chance that the Fed will raise rates by 25 basis points at its policy meeting later this month, according to the CME FedWatch tool.
The yen, meanwhile, jumped more than 0.5% against the dollar to 143.89 as concerns about the global growth outlook, resulting from the aggressive monetary tightening by major central banks, weighed on risk appetite.
The Japanese currency is traditionally considered as a safe haven asset.
“(The yen) was stronger on risk-off mode as fears of additional tightening may weigh on growth, risk assets,” said Christopher Wong, a currency strategist at OCBC.
“This is largely in line with our caution that worries of global growth concerns and rates staying higher for longer remain intact and may well curb risk appetite.”
Nordea’s Christensen said that investors were likely hesitant to push the dollar higher against the yen with the threat of intervention from Japanese authorities looming.
“There was verbal intervention over the last week. Markets are nervous about whether the Bank of Japan will intervene,” Christensen said.
The Australian dollar recovered 0.3% to $0.6671, after having fallen more than 0.5% in the previous session following a private-sector survey showing China’s services activity expanded at the slowest pace in five months in June.
The New Zealand dollar gained 0.3% to $0.62.
“The Aussie is very sensitive to every bit of news from China at the moment,” said Sean Callow, senior currency strategist at Westpac.
“Since we got that reopening-from-lockdown rebound in the services sector (in China) … it’s been a bit patchy, and I think markets are just not quite sure if the Chinese government is serious about stimulating the economy.”
The Chinese yuan last traded at 7.2577 per dollar in the offshore market, after having fallen about 0.4% the previous session. The central bank set a stronger-than-expected midpoint fixing for the fourth-straight day this week, which traders believe is an attempt to prevent the yuan from weakening too fast and too far. [CNY/]