By Gertrude Chavez-Dreyfuss and Saqib Iqbal Ahmed
NEW YORK (Reuters) – The U.S. dollar rose sharply against the euro on Tuesday after Federal Reserve policymakers said it would be wise for the U.S. central bank to wait a few more months to ensure inflation really picks up the path to the 2% target is before interest rate cuts begin.
Against other currencies, the dollar was largely flat ahead of the US Memorial Day holiday next week.
“Amid a lack of economic data catalysts this week, trading margins have tightened in currency markets. However, the dollar remains on solid footing, supported by a drumbeat for long messages from Fed officials,” said Karl Schamotta, chief market strategist. at Corpay in Toronto.
Fed Governor Christopher Waller told the Peterson Institute for International Economics in Washington on Tuesday that he needs several more months of good inflation data before he feels comfortable supporting an easing of monetary policy.
However, Waller did put an end to any speculation that interest rates might have to rise again to soften demand enough to further ease price pressure. He said the latest inflation data is “reassuring” and that the likelihood of a rate hike “is very low.” .”
Atlanta Fed Chairman Raphael Bostic also spoke on Tuesday and warned against cutting interest rates too quickly. The Fed, he said, must be cautious in approving the first rate cut to ensure it doesn’t dent pent-up corporate and household spending and leave the central bank in a position where inflation “starts to come around.” bounce’.
“Fed speakers are driving the market – and so far they haven’t said anything traders didn’t expect,” said Helen Give, currency trader, at Monex USA in Washington.
“Barring a surprise from the FOMC (Federal Open Market Committee) minutes tomorrow afternoon, it’s likely this could remain a fairly quiet week.”
Fed Chairman Jerome Powell also ruled out interest rate increases in his press conference after the Fed kept interest rates stable earlier this month.
“What that does is it removes the tail risk scenario that the Fed is still thinking about rate hikes because they are essentially questioning their assumption that rates are restrictive enough,” said Vishal Khanduja, co-head of Broad Markets Fixed Income at Morgan Stanley. Investment management.
The euro traded 0.05% lower at $1.0852.
Investors will pay attention to data from the European Central Bank’s negotiated wage tracker and the eurozone Purchasing Managers’ Index on Thursday, which could provide further clues about the eurozone monetary cycle.
On Tuesday, the US currency fell 0.04% against the Japanese yen to 156.20.
This dollar-yen pair has traded within tight ranges in recent trading days after a tumultuous start to May in the wake of suspected rounds of currency interventions by Tokyo to support the yen.
Fears of intervention from Japanese authorities have kept traders from pushing the yen to new lows. The yen fell to over 160 per dollar on April 29, the weakest in 34 years.
CRYPTO PROFIT
In cryptocurrencies, ether was poised for its biggest two-day gain in nearly two years and bitcoin neared an all-time high amid speculation about the outcome of applications for U.S. spot exchange-traded funds that would track the world’s second-largest cryptocurrency.
Ether was 6.5% higher at $3,728.70, having previously reached $3,838.80, its highest level since mid-March. It rose nearly 14% in the previous session – the biggest daily percentage gain since November 2022.
broke above the $70,000 level and was last trading 0.25% higher at $69,707. It reached its all-time high of $73,803.25 in March.
(This story has been refiled to change the spelling of the Morgan Stanley official’s last name in paragraph 10 to Khanduja, not Khanduha)
