TOKYO- The dollar hovered near a six-week high against major peers on Wednesday as investors cemented expectations that the Federal Reserve would be in no rush to cut interest rates in the face of a resilient US economy.
The Japanese yen, though, ticked higher as expectations rose for a stimulus exit as soon as March, following hawkish comments from the Bank of Japan on Tuesday.
The US dollar index which tracks the currency against six rivals, including the euro and yen – was flat at 103.48 after rising to the highest since Dec. 13 at 103.82 in the previous session.
The US rate futures market on Tuesday priced in a roughly 47 percent chance of a March rate cut, up from late on Monday, but down from as much 80 percent about two weeks ago, according to LSEG’s rate probability app.
For 2024, futures traders are betting on five quarter-point rate cuts. Two weeks ago they expected six.
In the last comments before Fed officials entered a blackout period ahead of their Jan. 31 policy decision, San Francisco Fed President Mary Daly said Friday she believes monetary policy is in a “good place” and it is premature to think rate cuts are imminent.
Earlier that week, Fed Governor Christopher Waller said policymakers would move “carefully and slowly”, which traders took as pushing back at pricing for a speedy fall in rates.
“Markets have been correcting from the narrative that rate cuts were incoming and incoming quickly,” leading to dollar strength, said James Kniveton, senior corporate FX dealer at Convera.
“This follows a general pattern of resistance to inflation reduction the closer central banks get to their final target, and has caused a rethinking of how fast monetary policy would return to lower levels,” he added. “We have seen ECB (European Central Bank) officials push back on rate cut expectations as well, in line with the Federal Reserve.”
