The U.S. dollar has continued to trade on the firm side as traders prepare for the conclusion of the Fed’s latest policy-setting meeting later in the day.
While the central bank is expected to leave interest rates unchanged, it will also reiterate its “higher for longer” stance as recent data has pointed to a resilient economy despite an extended series of rate hikes – a scenario that bodes well for the greenback.
“In addition, the geopolitical backdrop remains dollar positive, where any threat of escalation in the Middle East and what it could do to oil prices remains a dollar positive,” analysts at ING said in a note.
Comments from Chairman Jerome Powell will be in the spotlight as investors parse every word to gauge where interest rates are headed, particularly to see if Powell tries to keep another hike on the table.
Traders Remain on Yen Intervention Watch
The dollar’s strength was most evident against the Japanese yen following the Bank of Japan‘s latest policy meeting, where the central bank decided to keep interest rates negative while making minimal changes to its yield curve control policy.
The BoJ meeting did not trigger a reset in our view of the yen and the risk now is that USD/JPY pushes to 152 and prompts the central bank into aggressive FX intervention,” ING said.
The BOJ intervened in the government bond market early Wednesday to curb a spike in yields after the benchmark 10-year Japanese government bond yield jumped 2 basis points to 0.970% on Wednesday, a level last seen in May 2013.
That helped push USD/JPY down 0.2% to 151.31, but the Japanese currency remains close to Tuesday’s one-year low of 151.74 and last year’s three-decade low of 151.94, which prompted Tokyo to intervene.
Masato Kanda, Japan’s top currency diplomat, said authorities are “on standby” to respond to the yen’s recent “one-sided, sharp” falls, but it may take actual intervention instead of stern comments to stop further yen weakness.
Euro Slips Ahead of Powell Comments
The EUR/USD fell 0.1% to 1.0562 after data showed that euro zone prices rose just 2.9% in October, the slowest pace since July 2021.
The European Central Bank needs to keep interest rates high long enough because inflation in the euro zone has not been defeated despite a significant drop last year, ECB policymaker Joachim Nagel said on Tuesday.
However, this data feeds into the narrative that the ECB is done tightening and the Euro could see further weakness if Fed Chair Powell is seen as hawkish later in the meeting.
Chinese private PMIs disappoint
USD/CNY rose 0.1% to 7.3194, with sentiment towards the Chinese Yuan remaining largely negative as a private PMI survey showed that China’s manufacturing sector contracted in October.
The reading followed a government survey on Tuesday that showed a similar contraction, adding to market doubts about a Chinese economic recovery this year.
Elsewhere, the GBP/USD was largely flat at 1.2154 as Nationwide house prices rose in October ahead of the Bank of England‘s latest policy meeting later in the week.