Dollar Holds Steady Ahead Of Fed Minutes, US Inflation Test

(CTN News) – The dollar traded largely rangebound on Wednesday, weighed down by dovish comments from the Federal Reserve, as traders awaited the minutes of the central bank’s policy meeting later in the day to gain further insight into the central bank’s interest rate outlook.

In recent days, a number of Fed officials have indicated that the central bank may not have to tighten monetary policy as much as originally anticipated.

Raphael Bostic, president of the Atlanta Federal Reserve Bank, stated on Tuesday that the central bank did not need to raise borrowing rates any further, and Neel Kashkari, president of the Minneapolis Federal Reserve, made similar comments later in the day.

On Wednesday, the greenback traded near a two-week low against a basket of currencies.

Euro-dollar prices last traded at $1.0604, not far from Tuesday’s more than two-week high of $1.0620. Sterling rose to a three-week high of $1.23035, while sterling last traded at $1.23035.

“The Federal Reserve is moving away from further rate hikes, and its tightening bias may be dropped by December,” said Thierry Wizman, Macquarie’s global FX and interest rate strategist.

On Tuesday, U.S. Treasury yields fell following the dovish Fed comments, with the two-year yield, which is typically indicative of near-term interest rate expectations, reaching a one-month low of 4.9260%. The rate was last at 4.9990%.

There was a yield of 4.6407% on the benchmark 10-year note.

Minutes of the Fed’s September policy meeting are expected to be released later on Wednesday, which could provide further insight into the Fed’s interest rate outlook. The next day, the United States will publish its inflation data.

Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA), believes markets will be particularly interested in whether the (Federal Open Market Committee) will follow through with its additional 25-basis-point hike forecast in its latest dot plot.

“Any comments perceived as slightly dovish may lead to a further unwinding of yields, which in turn may weigh on the U.S. dollar.

Is China providing assistance?

A report stating that China is considering new stimulus measures helped the Australian dollar rise to a one-week high of $0.6445, while the New Zealand dollar scaled a two-month high of $0.6056, though these gains were later reversed.

In many cases, the two Antipodean currencies are used as liquid proxies for the Chinese currency.

During the last trading session, the Australian dollar fell 0.12% to $0.64235, while the New Zealand dollar fell 0.31% to $0.6029.

As the government prepares to introduce a new round of stimulus to help the economy meet Beijing’s annual growth target, China plans to increase its budget deficit for 2023. Considering that the government has been reluctant to unleash any large-scale stimulus this past year, markets are still somewhat cautious about the government introducing a large-scale stimulus.

As a result, I believe the market is unsure whether that report is accurate,” said CBA’s Kong.

Clearly, if the report is accurate and Chinese officials announce a large stimulus package, the Chinese currency (the yuan) and other currencies linked to the Chinese economy will benefit.”

On both the onshore and offshore markets, the yuan was little changed against the dollar, closing at 7.2942 per dollar on the onshore market.

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