LONDON (Reuters) – The US dollar traded near its lowest in more than two weeks against its major peers on Thursday, followed by lower Treasury yields, after minutes from the March policy meeting on the federal reserves offered no new catalyst to dictate the direction of the market.
Fed officials have remained cautious about pandemic risks – even as the US recovery accelerates amid massive stimulus – and pledged to provide monetary policy support until a rebound be safer, according to the report Wednesday.
Fed Chairman Jerome Powell will speak at a virtual International Monetary Fund conference later Thursday.
The dollar index, which measures the US currency against a basket of six currencies, edged down to 92.30 in London trading, after falling to 92.134 on Wednesday for the first time since March 23.
The index hit an almost five-month high of 93.439 at the end of last month, as the resumption of the US pandemic overtook that of most other developed countries, particularly in Europe.
The Fed minutes did not bring any negative surprise to risk sentiment, with the committee reiterating that there is no need to rush into tighter monetary conditions and further support the recovery, said Petr Krpata, Chief Currency and Interest Rate Strategist in EMEA at ING.
We expect the very accommodating Fed to eventually weigh on the USD as we move into the summer – rising inflation, but no sign of an impending rate hike will push real US rates down. Entry further into the negative trough, and coupled with the recovery in the global economy (which should be more synchronized in nature in 2H21), should weigh on the USD.
The benchmark 10-year Treasury yield was around 1.658% on Thursday, after falling below 1.63% overnight. It hit 1.776% at the end of last month, its highest level in over a year.
The S&P 500 posted a modest gain on Wednesday, moving mostly sideways since reaching an all-time high to start the week.
Citigroup Global Markets Japan’s chief currency strategist Osamu Takashima said the direction of the markets was difficult to follow but expects the dollar’s next move to be lower.
The current market sentiment is slightly risky, and under such circumstances the dollar will gradually weaken – but no big move, he said.
The decline in US rates also eliminated an engine of dollar gains, he added.
The dollar weakened to 109.49 yen, consolidating after declining 110.97, its highest in more than a year, reached on March 31.
The euro was virtually unchanged from Wednesday at $ 1.1876, after rebounding from $ 1.1704, its lowest in nearly five months, hit on March 31.
Immunization progress in the euro area is significantly lower than in the United States, and coronavirus infection rates in the euro area are on the rise again, wrote Joseph Capurso, strategist at the Commonwealth Bank of Australia , in a customer note.
As such, EUR / USD is vulnerable to a move lower towards 1.1700 in the near term.
Reporting by Ritvik Carvalho; additional reporting by Kevin Buckland in Tokyo; edited by Larry King
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