SINGAPORE – The dollar was subdued on Wednesday, weighed by bearish US labor market data as investors fretted over the US debt ceiling and banking sector risks, while waiting for the Federal Reserve’s policy decision later in the day.
US job openings fell for a third straight month in March and layoffs increased to the highest in more than two years, data showed on Tuesday, offering some hope that softening in the labor market could aid the Fed’s fight against inflation.
The dollar index, which measures the US currency against six rivals, eased 0.029 percent to 101.820 after sliding 0.245 percent on Tuesday.
The US central bank is widely expected to raise interest rates by 25 basis points when it concludes a two-day meeting on Wednesday and investor focus will be on whether the Fed hints at a pause or further tightening.
“The reaction by currencies will come from whether the post meeting statement and press conference are deemed ‘hawkish’ or ‘dovish’,” said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia.
“We expect FOMC chair Powell to be hawkish compared to market expectations because inflation is too high and the labor market is too tight, although both indicators have moved in the right direction recently.”
Markets have priced in an 86 percent chance of a 25 bp hike on Wednesday, CME FedWatch tool showed, but expects the central bank to cut rates towards the end of the year.
The Fed’s meeting comes as U.S financial markets are reeling from the weekend failure of San Francisco-based First Republic Bank as well as worries that the government could run out of cash after June 1 without a debt ceiling hike. – Reuters
