© Reuters. FILE PHOTO: US dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS / Dado Ruvic / Illustration // File Photo
By Kevin Buckland
TOKYO (Reuters) – The dollar retreated from last week’s 2-1/2 month high on Tuesday after weak U.S. services data unexpectedly boosted expectations of a rate hike at next week’s Federal Reserve meeting but clouded the policy outlook for months. Before.
The index did not hover far from last week’s high ahead of the Reserve Bank of Australia’s monetary policy decision later in the day, with analysts and investors divided on whether or not the central bank will hike.
Leading cryptocurrency Bitcoin has fallen towards the psychological $25,000 mark after US regulators sued Binance, the world’s largest cryptocurrency exchange.
Global markets have been very focused on what the Fed might do at next week’s meeting and beyond, with statements and comments from central bank officials causing some volatility in the dollar.
– which measures the currency against six major peers – was flat at 104.00, after a shaky few days that saw it rally to a 2 1/2-month high of 104.70 on the last day of May, only to be slumped by suggestions by Fed officials that they would skip rate hike in June.
However, hot employment numbers on Friday saw bets on a July rally, while weak results for the services sector overnight clouded the rate outlook once again.
The FOMC sets policy on June 14, and markets are now pricing in a 77% chance the Fed will hold steady, a sharp jump from the 36% chance the week before, according to the CME FedWatch tool.
“The ISM Soft Services PMI was unexpected to say the least,” said Tony Sycamore, market analyst at IG Markets in Sydney. “The services have been a real pocket of resilience.”
With no major US data for the rest of the week and Fed officials in a “blackout” period, “it seems to me that the dollar is somewhat on hold ahead of the FOMC meeting,” Sycamore said.
“It makes sense, because if you had a position here, you wouldn’t want to add to it.”
The dollar was little changed at 139.55 yen, while the euro rose 0.08% to $1.0718.
The Australian dollar settled at $0.6617. It reached $0.66385 on Friday after a significant increase in the minimum wage.
The currency fell to its lowest level since early November on the last day of May, weighed down by weak economic data at home and in major trading partner China.
“If you were the RBA and you were considering whether to pause or tighten again, I think what we saw at the end of last week tipped the balance strongly in favor of a rate hike,” IG’s Sycamore said, referring to a wage hike.
“The market is still deficient in the Australian dollar,” he said. “If you see a rally today, the next stop is 67 cents.”
The money markets are currently placing odds of 35% on a quarter point interest rate increase.
Elsewhere, bitcoin tried to find its feet around $25,370, after falling 5.1% overnight in its biggest drop since April 19.
The Securities and Exchange Commission (SEC) sued Binance and its CEO Changpeng Zhao on Monday for allegedly operating a “scam network,” saying the exchange artificially inflated its trading volumes, diverted customer funds, failed to lock U.S. customers off its platform and misled it. Investors around market watch controls.