The dollar hit a two-week low on Thursday. This is mainly due to the anticipation of swift interest rate cuts in the U.S., and the dollar took a hit against the struggling yen. This downward trend started on Wednesday when surprising data showed slow growth in U.S. services, suggesting lower interest rates.
Federal reserve insights boost U.S. dollar's recovery
The U.S. currency recovered from earlier losses. This was possible after the President of the Minneapolis Federal Reserve, Neel Kashkari, said there might not be a need for rate cuts this year if inflation continues to remain the same.
Richmond Fed President Thomas Barkin made some observations about the current economic situation. He expressed his concerns that the inflation data from the beginning of this year has not been as promising as hoped.
According to Barkin, this brings about a crucial inquiry. It begs to know if this is a significant change in the economic forecast or simply a temporary hiccup in the journey.
The dollar index fell by 0.077% to 104.14. It has been the lowest since March 21st when it dropped to as low as 103.910.
Everyone will be focused on the upcoming U.S. jobs report, which will be released on Friday. According to economists surveyed by Reuters, around 200,000 jobs are expected to be added in March.
According to Paresh Upadhyaya, the director of fixed income and currency strategy at Amundi US, Powell seems to be persistently targeting a rate cut in June. Upadhyaya suggests an amplified reaction toward the upcoming labor report, mainly if the non-farm payrolls fall below expectations or simply fail to meet them.
Japanese yen approaches 34-year low
The yen is nearing a 34-year low against the U.S. dollar despite the Bank of Japan's drastic policy change to stop negative interest rates after eight years. Unfortunately, this move hasn't strengthened the yen. The Bank's Governor, Kazuo Ueda, told Asahi newspaper he wouldn't rule out adjusting the monetary policy if the changes in exchange rates heavily impact Japan's inflation and wages.
The contrast between the U.S.'s 10-year yield rate, which is currently more than 4%, and Japan's near-zero rate is encouraging major Japanese investors to keep their money overseas. It gives better returns and keeps the yen from strengthening due to money being repatriated.
The yen has increased by 0.27% against the dollar, rising to 151.28. Last week, it reached 151.975.
On Thursday, Tatsuo Yamazaki, a previous high-ranking currency official in Japan, suggested that if the yen strays significantly from its consistent range over the years, slipping past 152 per dollar, Japanese authorities will probably step in to stabilize the market.
In a similar context, Steve Englander, who heads the global G10 FX research and North America macro strategy at Standard Chartered Bank in New York, speculated that authorities may not necessarily draw the line right at 152. Still, he believes they will be compelled to step in if the value nears 152.
Swiss franc and monetary policy outlook
The Swiss franc suffered a dip of approximately 0.6% against the dollar. This occurred after data revealed a less-than-predicted annual rise of 1.0% in the Swiss Consumer Price Index in March. The Swiss franc slipped to 0.9848 against the euro - the lowest since the beginning of May 2023. Furthermore, it fell to a low of 0.9095 against the dollar - a rate not seen since the start of November 2023.
Experts have shared their predictions that the Swiss National Bank will likely further reduce their rates by an extra 50 basis points this year due to the continued decline of inflation in Switzerland this March.
The euro rose slightly by 0.12%, retracing its position back to the median of an exchange range it has been fluctuating in for the past year, with a standing rate of $1.085.
On Wednesday, European inflation was less severe than anticipated, setting the stage for a predicted cut in European rates in June. This development encouraged traders to boost both the Australian and New Zealand dollars.
As a result, the Aussie climbed above its 200-day moving average, reaching a two-week high of $0.66180.
The New Zealand dollar has stabilized above $0.60, with the current exchange rate showing a slight increase of 0.33%, sitting at $0.603. It is anticipated that New Zealand's rate will undergo cuts starting in August, whereas Australia's rates will most likely remain the same until November.