TOKYO- The dollar languished well below last week’s 2-1/2-month highs on Tuesday after unexpectedly soft US services data firmed up expectations for a rate pause at the Federal Reserve’s meeting next week but clouded the policy outlook for the months ahead.
The Aussie hovered not far from last week’s high ahead of the Reserve Bank of Australia’s policy decision later in the day, with analysts and investors split over whether the central bank will hike or hold.
Leading cryptocurrency bitcoin sagged toward the psychological $25,000 mark after US regulators sued Binance, the world’s biggest cryptocurrency exchange.
Global markets have been keenly focused on what the Fed might do at next week’s meeting and thereafter, with data and comments from central bank officials causing some volatility in the dollar.
The US dollar index – which measures the currency against six major peers – was flat at 104.00, after a shaky few days that saw it rally to a 2 1/2-month peak at 104.70 on the final day of May, only to get knocked back by suggestions by Fed officials that they would skip a rate hike in June.
However, hot employment numbers on Friday saw bets for a July hike ramp up, while the overnight weak services sector outcome has yet again clouded the outlook for rates.
The Federal Open Market Committee (FOMC) sets policy on June 14, and markets are now pricing in a 77 percent chance of the Fed standing still, a sharp jump from a 36 percent chance a week earlier, according to CME FedWatch tool.
“The soft ISM services PMI was unexpected to say the least,” said Tony Sycamore, a market analyst at IG Markets in Sydney. “Services have been a real pocket of resilience.”
With no major US data for the remainder of the week and Fed officials in a “blackout” period, “it looks to me like the dollar is in a bit of a holding pattern ahead of the FOMC meeting,” Sycamore said.
