The U.S. dollar is rebounding from recent lows, maintaining its upward momentum following the release of the Federal Reserve’s minutes. These documents indicated that policymakers are not in a hurried position to reduce interest rates, with some even open to potential hikes if inflation proves persistent.
Asian trading hours saw U.S. yields rising, as the dollar solidified its gains against both the euro and the yen, keeping the euro below the $1.18 mark.
The Australian dollar was valued at $0.7045, ahead of forthcoming employment figures, with strong data expected to heighten expectations for future rate increases.
Conversely, the New Zealand dollar faced challenges, experiencing its sharpest decline since last April after the central bank adopted a cautious stance regarding future rate hikes, falling short of market expectations.
Overnight, the kiwi dropped nearly 1.4%, trading just below $0.60. Meanwhile, the euro remained around $1.1788, also affected by reports mentioning that European Central Bank President Christine Lagarde may leave her position before her term concludes in October next year. The British pound was situated at $1.3497.
According to the Fed minutes, there is a division among policymakers regarding the future direction of U.S. interest rates, indicating that the incoming chairman, set to take office in May, may face challenges in implementing rate cuts.
Some officials anticipate that productivity improvements will help mitigate inflation, as the minutes report, but “most participants” warned that progress may be slow and inconsistent. Additionally, a few indicated that rate hikes could be on the table if inflation remains above target.
“This implies little urgency to lower rates again, at least until after current chair Jerome Powell’s term concludes in May,” stated Peter Dragicevich, an Asia-Pacific currency strategist at Corpay.
Looking ahead, markets are anticipating the release of global purchasing managers’ index figures and U.S. gross domestic product data, expected on Friday.
Yen Weakens Amid U.S. Investment Spending
The yen suffered against the dollar, declining overnight as the Trump administration unveiled projects with an estimated value of $36 billion, marking the initial investments under Japan’s $550 billion investment commitment to the U.S.
It fell by 1% overnight, stabilizing at 154.78 against the dollar on Thursday, retreating from the 152 threshold reached the previous week following Prime Minister Sanae Takaichi’s overwhelming electoral win.
For years, the yen has been depreciating due to a mix of low domestic interest rates and worries about Japan’s budget situation. However, it has recently gained some support based on optimism regarding economic growth.
“Foreign direct investment from Japan into the U.S. will be a key aspect to monitor this year, complicating the outlook for USD/JPY,” remarked Chris Turner, ING’s global head of research.
“The critical question for currency markets this year is whether this investment will bolster dollar flow or if Japan’s foreign exchange reserves will be utilized to back new USD loans, alleviating pressure on the yen. The latter appears to be Tokyo’s preferred scenario.”
Asian trading volumes were lighter due to holidays in Hong Kong, China, and Taiwan, with the yuan stable at 6.89 against the dollar in offshore markets.
Reporting by Tom Westbrook; Editing by Lincoln Feast.
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