© Reuters.
Investing.com – The US dollar rose in early European trade on Thursday, buoyed by the Federal Reserve’s hawkish expectations for further tightening this year, while the euro weakened ahead of the central bank’s latest European policy meeting.
At 02:05 ET (06:05 GMT), the US dollar, which measures the greenback against a basket of six other currencies, was trading up 0.3% at 102.835, recovering from a four-week low in the previous session.
The Falcon Fed supports the dollar
The US currency rebounded after recent losses in the wake of the conclusion of its latest policy-setting meeting on Wednesday, where the central bank decided to pause its policy tightening cycle for a year, as was widely expected.
However, the Fed also indicated in the New Economic Outlook that rates will likely rise by another half percentage point, two more increases of 25 basis points, by the end of this year.
“We believe that the indication of another increase in the 2023 outlook should lead to a significant rally in the dollar as markets see the July meeting as the most likely date for the next rate hike,” ING analysts said in a note.
The ECB expects to raise rates later
The greenback fell 0.2% to 1.0817, suffering a greenback recovery ahead of the upcoming European Central Bank later in the session, with another 25 basis point rally expected broadly.
Such a move would be the eighth consecutive increase of this magnitude, and the ECB is also expected to signal further hikes in the coming months following President Christine Lagarde’s recent remarks that “there is no clear evidence that core inflation has peaked.”
The yen hit its lowest level in seven months
It rose 0.8% to 141.14, rising to levels not seen since November last year after traders differentiated between hawkish comments from the Fed and what is likely to come on Friday.
The Bank of Japan is widely expected to maintain its very dovish stance and yield curve control settings as it tries to support the country’s nascent economic recovery.
However, a Japanese government spokesperson tried to offer vocal support for the yen, saying that volatile currency market moves were undesirable and that the authorities would take “appropriate” action as needed.
Elsewhere, it fell 0.1% to 1.2652, and fell 0.3% to 0.6189 after data showed the New Zealand economy contracted to a technical level in the first quarter, while it fell 0.2% to 7.1529, with the yuan trading near a six-month low after the People’s Bank. China cut interest rates on its medium-term loans on Thursday.