By Saqib Iqbal Ahmed
NEW YORK (Reuters) – The dollar rose against the euro on Wednesday after minutes of the latest Fed meeting showed officials acknowledged disappointment over recent inflation data, while the pound held on to gains after British Prime Minister Rishi Sunak called for general election on July 4.
Federal Reserve officials indicated at their latest policy meeting that they were still confident that price pressures would ease, if only slowly, according to minutes of the U.S. central bank’s April 30-May 1 session .
“Participants noted that they continued to expect inflation to return to 2% over the medium term,” the minutes said, but “disinflation would likely last longer than previously thought.”
While the policy response for now would involve keeping the central bank’s policy rate at current levels, the minutes, released on Wednesday, also reflected discussion about possible further increases.
Investors stepped up U.S. interest rate cuts following dovish inflation data last week, even as Fed officials remained cautious.
Fed Governor Christopher Waller said Tuesday he needs several more months of good inflation data before he feels comfortable supporting rate cuts.
That timeline was echoed by Loretta Mester, president of the Cleveland Fed.
“The minutes confirmed what most traders already thought ahead of the U.S. CPI report a week ago,” said Amarjit Sahota, director of currency risk management firm Klarity FX in San Francisco.
“That is, FOMC members were increasingly frustrated by disappointing inflation data in the first quarter, but felt the policy was restrictive enough,” Sahota said.
“The indication that some officials were willing to tighten policy further has given the USD further gains since the minutes were released,” he said.
While markets remain hopeful that US inflation will continue to cool, personal consumption expenditure data due May 31 will be a crucial test, analysts said.
The euro fell 0.3% to $1.08205.
Meanwhile, the pound was 0.1% higher at $1.2717 after Prime Minister Sunak called a national election on Wednesday and named July 4 as the date for a vote that is widely expected to see his ruling Conservatives lose out after 14 years in power. the opposition Labor party.
The pound rose earlier in the session after data showed British inflation did not slow as much as expected but edged closer to the BoE’s target in April, prompting investors to take their bets on a rate cut next month. [GBP/]
UK consumer prices rose 2.3% year-on-year in April, a slowdown from a 3.2% increase in March. The BoE and economists polled by Reuters had forecast an annual growth rate of 2.1%.
Money markets now see only a 15% chance of a rate cut in June, according to LSEG data. Earlier this week, prices in derivatives markets suggested traders saw a 55% chance of a first cut in June.
Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets in London, said inflation-driven rate revisions appeared exaggerated.
“We should note that GBP’s rallies may prove short-lived as the immediate move in rate cut expectations appears overdone, not least if tomorrow’s PMI reading reveals signs of consumer fatigue,” he said. he.
Elsewhere, the Reserve Bank of New Zealand left its benchmark interest rate at 5.5% as expected, but raised its expectations for peak interest rates at its latest monetary policy meeting as inflation remains stubbornly high.
Now rates see a spike of 5.7% at the end of 2024, up from 5.6% three months ago.
The New Zealand dollar rose to $0.6152, its highest level since March 14, before giving up gains to be little changed on the day at $0.6086.
Against the yen, the dollar rose 0.3% to 156.62 after data showed Japanese exports rose 8.3% in April from a year earlier.
Fears of currency intervention by Tokyo still had traders on alert after suspected rounds of intervention earlier this month.
In cryptocurrencies, ether fell 0.3% to $3,735 after rising 22% from the previous two sessions on speculation about the outcome of applications for US cash exchange-traded funds that hold the world’s second-largest cryptocurrency would follow. was roughly flat at $69,605 on Wednesday.
