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Dollar edges up as traders await Fed rate cut clues
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A woman stands in front of an electric screen displaying the Nikkei share average and Japanese Yen exchange rate against the US dollar outside a brokerage in Tokyo on April 26, 2024. (Reuters/Issei Kato)
T
he dollar edged higher on Tuesday as traders awaited a key US retail sales report and comments from Federal Reserve officials to better gauge the timing and pace of interest rate cuts.
The US dollar index, which measures the currency against the euro, sterling, yen and three other major peers, rose 0.11 percent to 105.39 in Asian hours.
On Monday, it lost 0.2 percent as it retreated from Friday's 1 1/2-month high of 105.80.
The greenback has been pulled in both directions as mild US inflation readings contrasted with an overall hawkish stance by Fed officials at last week's policy meeting, when they trimmed their previous median projection for three quarter-point rate cuts this year to one.
Rather, the rally in the dollar index had been mostly driven by a sharp euro selloff, after French President Emmanuel Macron called a shock snap election last week in response to his ruling centrist party's trouncing by Marine Le Pen's eurosceptic National Rally in the European Parliament elections.
"If you look at the data flow coming out of the US, the inflation data and the labor market data are pointing to a turn in policy at the Fed," despite the paring of rate cut projections by officials, said Rodrigo Catril, senior currency strategist at National Australia Bank.
"At the moment, it's the dollar's safe haven appeal that's been keeping it supported," Catril added, projecting that the dollar index would stay within its recent 104-106 range for the time being.
Philadelphia Fed President Patrick Harker revealed on Monday that he is in the single-cut camp, but left the door open to changing his view depending on incoming data.
A long list of Fed officials take to the podium at various venues later in the day, including the Boston Fed's Susan Collins and the Richmond Fed's Thomas Barkin.
The dollar was little changed at 157.675 yen on Tuesday.
The euro eased 0.12 percent to $1.0721, paring part of the previous session's 0.26 percent rise. Sterling edged 0.07 percent lower to $1.2696.
The euro has stabilized somewhat this week after Le Pen signalled she didn't intend to pursue extreme fiscal policies if in power, and that she isn't pushing for Macron's ouster.
"It's becoming clear that a hung parliament is the market's base case, and calmer heads would argue that any government that does involve Le Pen's RN party is unlikely to rock the fiscal boat too intently," said Chris Weston, head of research at Pepperstone.
"Le Pen has a Presidential election to win in 2027, and that can only happen if the party win the respect of the bond market."
Meanwhile, the Aussie dollar was unfazed by the Reserve Bank of Australia's as-expected decision to hold rates steady on Tuesday, and was little changed at $0.66115.
"The RBA's position was well-telegraphed: they're in wait-and-see mode until they get more inflation data," said NAB's Catril.
"Aussie's muted reaction is no surprise."
New Zealand's kiwi dollar slid 0.27 percent to $0.61145.
In cryptocurrencies, bitcoin lost about 1 percent to $65,725, and earlier touched a one-month low at $64,569.70.
