NEW YORK, April 17 (Reuters) – The dollar on Wednesday fell for the first time in six days, as investors consolidated gains after Federal Reserve officials repeated the interest rate-cutting cycle is on hold pending new economic data, while the monetary easing outlook for other major central banks remained unchanged.
The greenback also dropped from 5-1/2-month highs hit on Tuesday. The dollar index was last down 0.4% at 105.89 . So far this year, the index has gained about 4.7%.
“I see today’s move as more of a slight correction than anything. To put things into context, the dollar spot index is still just off its highest point since mid-November,” said Helen Given, FX trader at Monex USA in Washington.
“(Fed Chair Jerome) Powell’s panel yesterday was the big market-mover for the week, and now traders appear to be hedging on the other side of the market, so we’re seeing this pullback today. We’re reaching a point where markets have priced in the downshift on cuts from the Fed, so flows are a bit more normalized.”
Meanwhile, risks of a broadening Middle East conflict have added to the dollar’s safe-haven appeal in the short term.
After last week’s hotter-than-expected reading of U.S. consumer prices, the market has reduced the number of quarter-point rate cuts expected by the Fed this year to less than two. The first is now seen in September, later than a prior June, according to LSEG’s rate app.
A more hawkish view from the Fed has led Treasury yields to move higher and strengthened the dollar’s outlook.
“If for no other reason than the Fed will keep rates elevated, that will attract flows into the U.S.,” said Thierry Wizman, global FX & rates strategist at Macquarie in New York, adding that greater volatility across markets due to higher yields could prompt a flight to quality into the dollar.
In addition, U.S. economic data, unlike China and Europe, is still fairly robust, Wizman added.
“I see a statement like that as both unusual and priming the ground for an intervention from Japanese currency officials rather imminently,” Monex’s Given said. “I could see concrete steps from Japanese authorities as soon as by the end of this week.”
The dollar hit 154.79 yen on Tuesday, its weakest in 34 years.
Market participants raised the bar of a possible intervention by Japanese authorities to prop up the yen, now mentioning the 155 level from the previous 152, even if they believed Japan could step in at any time.
They also believe as long as the yen’s fall is gradual and led by fundamentals, the probability of a Japan intervention is low.
Japan last intervened in the currency market in 2022, spending an estimated $60 billion to defend the yen.
In other currencies, the euro rose 0.5% to $1.0667.
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Reporting by Herbert Lash and Gertrude Chavez-Dreyfuss; Additional reporting by Stefano Rebaudo in Milano and Ankur Banerjee in Singapore; Editing by Sam Holmes, Jacqueline Wong, Will Dunham, Ros Russell, Alex Richardson, Deepa Babington and Jonathan Oatis
Our Standards: The Thomson Reuters Trust Principles.
