(CTN News) – Investors await key inflation data as the dollar hovers near a two-week low on Thursday following minutes from the last US Federal Reserve meeting that show policymakers taking a cautious approach.
Dollar index, which measures the US currency against six rival currencies, was at 105.67 on Wednesday, not far from its lowest level since Sept. 25. For the week, the index has declined by 0.4%.
According to the minutes released from the Federal Reserve’s meeting of Sept. 19-20, officials indicated that uncertainties in the economy, oil prices, and financial markets support “the case for proceeding carefully in determining the extent of additional policy firming that may be appropriate.”
Officials from the Federal Reserve have cited rising bond yields as a probable reason for calling it a day on the rate hike cycle.
A mixed report on US producer prices in September, which increased more than expected due to higher energy costs and food costs, also kept the mood cautious. In spite of this, underlying inflation pressures at the factory gate continued to subside.
In addition to this (PPI data), it is a reminder that the last mile of the fight against inflation will be a tough one, according to Ryan Brandham, head of global capital markets, North America at Validus Risk Management.
It comes ahead of the release on Thursday of consumer price index data for September, which is expected to show that inflation moderated in September.
Inflation surprises on the downside will likely support the view that the Fed has finished its tightening cycle, causing US yields to fall and the dollar to fall, according to Carol Kong, a currency strategist at the Commonwealth Bank of Australia.
The Federal Open Market Committee’s projected 25 basis point hike may be priced higher in the event of an upside surprise.
According to the CME FedWatch tool, the futures markets price in a 26% chance of a 25 basis point hike at the December meeting, and a 9% chance of a 25 basis point hike at the November meeting.
As bond prices rallied on the Fed’s softer stance on future rate hikes, the dollar has recently weakened in response to falling Treasury yields. In contrast to the price of bonds, bond yields move in the opposite direction.
There was a 3.5 basis point decline in the yield on 10-year Treasury notes to 4.562%.
A high of over two weeks was reached on Wednesday, which led to a 0.03 percent increase in the euro to $1.062.
The European Central Bank has made progress in bringing inflation back to target, but further shocks may require the bank to continue its recently paused tightening cycle, two influential policymakers said on Wednesday.
Sterling was last trading at $1.2311, flat on the day, while the Japanese yen strengthened 0.03% to 149.11 per dollar.
As a result, the Australian dollar rose 0.05% to $0.642, while the New Zealand dollar declined 0.03% to $0.602.