Dollar near five-month high

The US dollar (USD) edged towards its highest level this year against a basket of peers and US share futures dipped on Wednesday ahead of a Federal Reserve policy decision, though trading was thin with many European and Asian markets closed.

The dollar gained over 0.5% on Tuesday on the six currencies that make up the dollar index, and the gauge rose as high as 106.49 on Wednesday, a whisker off its highest since November.

The euro steadied but was under pressure at $1.0670, not far from its mid April, five-month lows, while the pound was at $1.2478.

The latest move higher in the dollar came after hotter-than-expected first-quarter U.S. employment cost growth on Tuesday, which sent Treasury yields higher and caused markets to further pare bets on Fed rate cuts this year.

Traders are currently only pricing in one rate cut in 2024.

The Fed is almost certain to hold its benchmark overnight interest rate steady later in the day, but a policy statement issued at 1400 EDT (1800 GMT) and Chair Jerome Powell’s press conference half an hour later should provide insight into how deeply – if at all – a stretch of three lost months in the inflation battle has affected the likelihood that borrowing costs will fall any time soon.

“It’s pretty clear from the way that the data has been that we’re going to see a focus shift from the last Fed meeting, the question is the extent to which Powell has already previewed the shift of rhetoric when he last spoke,” said Michael Sneyd, head of cross-asset and macro quantitative strategy at BNP Paribas.

The Fed chair said in mid-April that monetary policy needed to be restrictive for longer.
“Heading into the Fed, we see that from a short-term perspective the dollar is not looking cheap anywhere,” said Sneyd.

The benchmark 10-year Treasury yield was flat on the day at 4.686% , just shy of mid-April’s peak of 4.739%, its highest in five months, having jumped 7 basis points (bps) the day before.

European bond markets were closed for the May 1 holiday as were most share markets in Europe and those in China, Hong Kong and much of Asia.

U.S. S&P500 futures dipped 0.4%, and Nasdaq futures shed 0.65% as chip stocks led losses after downbeat results.

Amazon.com bucked the trend to rise 2.2% in pre market after reporting quarterly results above market expectations.

Of those share markets that were trading, Britain’s FTSE edged up a touch, holding near its latest all-time intraday high hit the day before, and Japan’s Nikkei dipped 0.34%.

The British blue-chip index, which has underperformed world peers in recent months, was a rare gainer in April, rising 2.4%, helped by commodities stocks, while MSCI’s world index dropped 3.4%, its biggest monthly fall since September.

The other focus in currency markets is the Japanese yen. The currency dropped to 160 per dollar on Monday, its lowest since 1990, before strengthening in several sharp bursts to as strong as 154.4 per dollar with traders pointing to likely official intervention.

Japanese officials may have spent some 5.5 trillion yen($35 billion) in supporting the currency on Monday, Bank of Japan data suggested on Tuesday, but the yen was last at 157.9, over half way back to its pre-intervention level.

Oil prices fell for a third day on Wednesday amid increasing hopes of a ceasefire agreement in the Middle East and rising crude inventories and production in the U.S., the world’s biggest oil consumer.

Brent was down 1.2% at $85.27 a barrel. U.S. crude was down 1.4% at $80.73.
Gold was up 0.5% at $2296.4 an ounce but still down 5.5% from its mid-April record high, also affected by easing tensions in the Middle East.