LONDON, July 11 (Reuters) – The dollar weakened to a two-month low on Tuesday after Federal Reserve officials signaled the central bank was nearing the end of its tightening cycle. expectations.
Several central bank officials said Monday that the central bank may need to raise interest rates further to curb inflation, but the end of its current cycle of monetary policy tightening is nearing.
The comments pushed the greenback to a two-month low of 101.67 against a basket of currencies, as traders scaled back their expectations of how much more U.S. prices need to rise.
US interest rate expectations have been a key driver of the dollar since the Fed began its tightening cycle last year.
“Broader pressure on the USD could build as cyclical winds pick up and markets begin to anticipate easier Fed policy settings,” said Shaun Osborne, chief FX strategist at Scotiabank.
Markets are now turning their attention to Wednesday’s release of US consumer price data, which will provide further clarity on the central bank’s progress in its fight against stubbornly high inflation.
A survey by the New York Federal Reserve on Monday showed a decline in near-term inflation expectations among Americans who last month said they expected the weakest inflation gains in two years.
“The market may get an additional reason to sell the US dollar in the form of inflation data,” said Yoo-Na Park-Heger, FX analyst at Commerzbank, noting that headline and core inflation will moderate.
Sterling, meanwhile, hit a 15-month high of $1.2913 after British wage growth hit a collective record high, putting pressure on the Bank of England to tighten policy further to tame inflation.
According to Danske Bank FX analyst Kirstin Gundby-Nielsen, the pound is rallying on aggressive reselling of expectations for a stronger economy and tighter BoE policy.
“There are no signs of relief in the labor market data and markets continue to rise in price. This was a big factor for the pound,” Gundby-Nielsen said.
0.6% for the first time in almost a month and passed 141 to the dollar. It was last traded at 140.455.
The yen has risen more than 3% from a seven-month low touched last month, which weakened past the 145-per-dollar level that made traders more wary of possible intervention by Japanese authorities.
“(The yen) started stalling near 145 earlier because of concerns about FX intervention,” Bank of Singapore currency strategist Moh Cheong Sim said.
Rising Japanese government bonds, along with a weaker dollar, have contributed to the stronger yen, he said.
“The market is starting to reawaken to the idea that there is policy risk ahead of the (Bank of Japan) July meeting … Given the backdrop of rising inflation in Japan, the market is starting to become more cautious. Policy changes may be coming.”
Elsewhere, the euro was up 0.1% at $1.1012, the Australian dollar was at $0.6680 and the New Zealand dollar was down 0.2% at $0.6198.
The Chinese yuan rose to 7.2055 per dollar in the last trade, as China’s central bank extended monetary policy support to the country’s troubled asset sector.
Report by Samuel Indig and Ray Wee; Editing by Sri Navaratnam, Edmund Claman and Alex Richardson
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