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Dollar Up, Investors Digest Hawkish Fed Minutes

Published 06-01-2022, 09:50 am
© Reuters

By Gina Lee

Investing.com – The dollar was up on Thursday morning in Asia, remaining near a five-year high to the yen as investors digested the hawkish tone in the minutes from the latest U.S. Federal Reserve meeting.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.01% to 96.188 by 11:05 PM ET (4:04 AM GMT).

The USD/JPY pair edged down 0.20% to 115.87.

The AUD/USD pair was down 0.45% to 0.7187 and the NZD/USD pair was down 0.38% to 0.6766.

The USD/CNY pair was up 0.29% to 6.3738, with Chinese data released earlier in the day showing that the Caixin services purchasing managers index (PMI) was 53.1 in December.

the GBP/USD pair edged down 0.14% to 1.3535.

The dollar was little changed against the yen, from Wednesday, when it rallied back toward Tuesday's high of 116.355.

Meanwhile, In the minutes from its December meeting, released on Wednesday, the Fed said the "very tight" U.S. labor market could justify faster-than-expected interest rate hikes to curb high inflation. Futures on the federal funds rate were quick to price in a roughly 80% chance of a quarter-percentage-point Fed hike by the March 2022 meeting.

Five-year U.S. Treasury yields, which are especially sensitive to interest rate expectations, climbed to an almost two-year high.

Investors also digested Tuesday’s ADP nonfarm employment change, which was a much higher-than-expected 807,000 in December. The U.S. jobs report, including non-farm payrolls, is due on Friday.

"With odds for a rate hike in March 2022 rising and the threat of QT this year, the USD should maintain resilient form," TD Securities analysts wrote in a report.

"That should leave USD/JPY supported over time, though we think a very hawkish Fed could cause some short-term indigestion for risk markets.

Despite the hawkish stance taken by the Fed in recent months, the dollar’s gains have languished since it hit a 16-month high of 96.938 in late November 2021.

"Trend and momentum dynamics continue to favor the dollar, but prices will have to pierce the Q4 2021 highs in order to reassert the uptrends in most cases," RBC strategist George Davis said in a report, pointing to euro, pound, and the Australian dollar in particular. The euro traded at $1.1310.

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