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On Wednesday, the dollar fell and remained under pressure near two-month lows as weak U.S. economic data showed signs the Federal Reserve is nearing the end of its tightening cycle.
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The Reserve Bank of New Zealand's (RBNZ) decision to raise interest rates by 50 basis points to a more than 14-year high on the same day surprised markets and sent the New Zealand dollar soaring. Only two of 24 economists polled by Reuters had forecast a 50 bps hike, while the rest had expected a 25 bps increase. Following the RBNZ's larger-than-expected rate hike on Wednesday, the NZDUSD exchange rate strengthened by 1% to hit a two-month high of $0.6383. However, by the end of trading, the NZDUSD had only risen by 0.74% to $0.636. On the other hand, US economic data showed that job openings plunged to their lowest level in almost two years in February. A measure of labor demand, Job Openings, fell by 632,000 to 9.9 million on the last day of February, according to the JOLTS Survey. Economists polled by Reuters had forecast 10.4 million openings. The DXY index, which measures the greenback against a basket of other currencies, also fell to a fresh two-month low of 101.43, after dropping about 0.5% overnight. It was last at 101.53. On Wednesday, the EURUSD pair rose 0.05% to $1.0958, although it was still below a two-month peak it hit on Tuesday. Meanwhile, the GBPUSD pair fell 0.04% to $1.2494, down from a ten-month high hit on Tuesday. The decline in US job openings underscores the softening demand for labor in the country, according to Rodrigo Catril, a currency strategist at National Australia Bank. He also expects the decline to continue over the coming months. Markets are seeing a shift in the outlook for interest rate hikes after softer-than-anticipated US jobs data. This has prompted the market to price in a 59% chance of the Federal Reserve (Fed) not raising interest rates at its next policy meeting in May, according to the CME FedWatch tool. Previously, the market had priced in a rate hike at the meeting. In addition, the market also priced in a 43% chance of the Fed not raising interest rates the day before. The market focus will now shift to Friday's key employment report, where consensus expects further moderation in non-farm payrolls growth to 240,000. This change could affect market and US currency movements. According to Reuters' opinion of foreign exchange strategists, the US dollar is likely to experience significant declines against most major currencies in 2023 as the interest rate gap with its peers narrows. This puts the US currency on the defensive after several years of running. In the US bond market, the two-year Treasury yield (US2YT=RR) rose 2.6 basis points to 3.860%, after falling 14 basis points on Tuesday.
Loretta Mester's remarks suggest the central bank still views an economic slowdown as a risk that can be managed by raising interest rates. But they also reflect divergent views among U.S. central bank members on the direction monetary policy should take.
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also read : USD Index Drops to 104.50 Zone From Weekly High |
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