The U.S. Dollar Retreats as Traders Await Crucial Federal Reserve Speech

2023-08-22 05:59:34

The U.S. dollar retreated from a 10-week high once morest its major peers on Tuesday, even as Treasury yields hit new post-financial crisis highs, as traders await a potentially crucial speech from the Federal Reserve Chairman Jerome Powell later in the week.

The yen pulled away from a nine-month low following Bank of Japan Governor Kazuo Ueda met with the prime minister, although he said exchange rate volatility had not been discussed.

The Chinese yuan briefly hit a one-week high as the central bank once once more tried to support the currency by setting a daily midpoint much higher than expected, but those gains quickly faded.

The U.S. dollar index – which measures the currency once morest six other developed market currencies including the yen and euro – fell 0.14% to 103.18 but is not far off the top. of 103.68 hit on Friday, a level not seen since June 12.

“Rising long-term yields in the United States and Chinese policymakers’ unconvincing response to ongoing tensions in China’s property and financial markets continue to provide bullish momentum for the U.S. dollar,” wrote Richard Franulovich, senior market strategist. currencies at Westpac, in a note.

“If President Powell leaves the door ajar for (rate) hikes,” during his speech Friday at the central bank’s annual symposium in Jackson Hole, Wyoming, “a new front for the rising dollar may form “, the dollar index might exceed 104, he said.

US 10-year Treasury yields rose to their highest level since November 2007, at 4.366%, as the idea that US rates will stay high for longer continued to dominate the market’s mind.

Money markets are currently pricing just under 50/50 for another 25 basis point hike from the Fed by November, before the central bank moves into rate cuts next year.

The dollar-yen pair resisted higher US yields, however, to trade 0.22% lower at 145.935. Traders are wary of intervention following levels around 146 spurred the first yen buying by Japanese officials in a generation last September.

On Thursday, the dollar hit 146.565 yen for the first time since Nov. 10.

The euro gained 0.15% to $1.0912. The pound gained 0.16% to $1.27765.

Separately, China’s central bank pegged the yuan’s midpoint at 7.1992 to the dollar on Tuesday, 1,105 pips higher than Archyde.com’ estimate, attempting to hold a floor under the currency following it tumbled to a low. 9.5 month high of 7,349 in offshore trading last week.

Tuesday’s fix follows lower and smaller interest rate cuts than markets had expected a day earlier, as Beijing’s stimulus measures continue to fall short despite growing problems in the sector. real estate and the economy as a whole.

The offshore yuan was little changed at 7.2934, following strengthening 0.25% following the fixing.

The Australian dollar, which often serves as a proxy for China, was also little changed at $0.6417.

The Aussie dollar has advanced in recent sessions following falling to a 9.5-month low of $0.6365 on Thursday.

“It will likely take a large Chinese stimulus package focused on commodity-intensive infrastructure spending to reverse the downward trend in AUD/USD,” wrote Kristina Clifton, senior currency strategist at the Commonwealth Bank of Australia, in a note, adding that there is “increasing risk” for a dip below $0.60 this year.

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