The U.S. dollar saw a modest uptick on Wednesday, reversing from recent declines as several Federal Reserve officials prepared to deliver speeches.
At 04:20 ET (08:20 GMT), the Dollar Index, gauging the greenback against a basket of six major currencies, edged up by 0.2% to 105.500, distancing itself from last week’s approximately one-month low.
Anticipated Fed Dialogue
Late Tuesday, Minneapolis Fed President Neel Kashkari’s remarks suggesting that persistent inflation and a robust economy could deter the central bank from adjusting interest rates for the remainder of the year provided a minor lift to the dollar.
With no significant U.S. economic data scheduled for this week, market focus remains fixed on the opinions of policymakers.
Scheduled speeches by Fed Vice Chair Philip Jefferson, Governor Lisa Cook, and Boston Fed President Susan Collins offer investors further insight into the trajectory of U.S. interest rates. While Fed Chair Jay Powell hinted at no further tightening last week, uncertainty lingers regarding the timing of a potential rate cut.
Morgan Stanley now predicts the Fed will commence interest rate reductions in September, revising its earlier forecast from July, while maintaining expectations of three 25-basis-point cuts throughout the year.
According to the bank, “A reversal in key components points to disinflation ahead, but given the lack of progress in recent months, it will take a bit longer for the FOMC to gain confidence to take the first step.”
European Economic Indicators
In Europe, EUR/USD dipped 0.2% to 1.0736 following data indicating a 0.4% decline in German industrial production for March, underscoring ongoing challenges in the German economy, as noted by analysts at Capital Economics.
While the European Central Bank has hinted at a rate cut in June, uncertainty persists regarding post-June monetary policy.
GBP/USD slipped 0.3% to 1.2473 ahead of the Bank of England‘s Thursday meeting. Although no interest rate changes are anticipated this week, speculation mounts regarding potential guidance towards a rate cut as early as next month, following the ECB’s expected cut on June 6.
Asian Currency Movements
In Asia, USD/JPY climbed 0.4% to 155.35 as the yen weakened, despite continued talk of potential intervention in currency markets from Japanese officials. Bank of Japan Governor Kazuo Ueda emphasized the possibility of monetary policy action in response to significant yen depreciation affecting prices.
Meanwhile, AUD/USD dropped 0.4% to 0.6568, extending losses from the previous session after the Reserve Bank of Australia struck a less hawkish tone than anticipated by traders. While the RBA held rates steady and cautioned of persisting inflation in the coming months, it refrained from suggesting further rate hikes, a scenario previously priced into the Aussie leading up to the meeting.
