Dollar Loses Steam from Five-month High

The United States of America dollar lost momentum on Thursday, May 24, after the double-whammy of dovish-looking minutes of the Federal Reserve’s last policy meeting and the threat by U.S. President Donald Trump of imposing new tariffs on imported cars.

Measured against a basket of six major currencies , the dollar stepped back to 98.865 from its five-month high of 94.195 hit just before the release of the Fed’s minutes.

While most policymakers thought it likely another interest rate increase would be warranted – in line with market expectations – the minutes showed the Fed would tolerate inflation rising above its goal for a time.

“The minutes suggested the Fed is not in a hurry to raise interest rates. The U.S. stock markets seem to like that they were not too hawkish,” said Ayako Sera, market economist at Sumitomo Mitsui Trust bank.

Moreover, the minutes also showed the board members generally agreed to make a small adjustment in its policy implementation by raising the interest rates on its excess reserves by 20 basis points, rather than by a widely anticipated 25 basis points.

Their discussion, while highly technical, came as a surprise to market players and helped bring down short-term U.S. interest rates and bond yields.

The dollar’s fall accelerated as Trump appeared to have opened a new front in the trade war by considering new tariffs, this time on cars, just days after Washington agreed with China to put “on hold” its plan to impose tariffs on $150 billion worth Chinese goods.

Against the yen, the dollar shed as much as 0.6 percent to 109.45 yen, a day after it had fallen 0.73 percent, its biggest fall in nearly three months. It last stood at 109.61 yen, down 0.4 percent on the day.

The safe-haven Swiss franc also ticked up 0.2 percent to 0.9943 franc to the dollar, helped by investors’ cautious mood. It hit a three-week high of 0.9894 per dollar on Wednesday.

Investors were unnerved by political developments in Italy, where the coalition government proposed by the anti-establishment 5-Star and far-right League could tap eurosceptic economist Paolo Savona as economy minister, Reuters reports.

 

 

 

LEAVE A REPLY

Please enter your comment!
Please enter your name here