Dollar near five-month highs ahead of Fed policy decision By Reuters

Written by Alun John

LONDON (Reuters) – The dollar rose towards its highest levels this year against a basket of its counterparts and US stock futures fell on Wednesday ahead of the Federal Reserve’s monetary policy decision, although trading was weak with many European and Asian markets closed. .

The dollar rose more than 0.5% on Tuesday across all six currencies that make up the currency, leaving the gauge at 106.49, just below its highest levels since November.

The euro came under pressure at $1.0664, returning to its lowest levels in five months in mid-April, while the pound sterling reached $1.2488.

The dollar's latest move came after U.S. employment costs grew hotter than expected in the first quarter on Tuesday, sending Treasury yields higher and causing markets to scale back their bets on Federal interest rate cuts this year.

Traders are currently pricing in just one rate cut in 2024.

The Fed will almost certainly keep its benchmark overnight interest rate steady later in the day, but a policy statement issued at 2 p.m. EDT (1800 GMT) and Chairman Jerome Powell's news conference a half-hour later should provide insight. Insight into how deeply – if at all – the three-month period lost in the inflation battle has dented the odds that borrowing costs will fall any time soon.

“It's pretty clear from the way the data showed that we're going to see a shift in focus from the last Fed meeting, and the question is to what extent Powell actually previewed the shift in rhetoric when he last spoke,” he said. Michael Snead, Head of Quantitative and Cross Asset Strategy, BNP Paribas (OTC:).

The Fed chairman said in mid-April that monetary policy should be tight for longer.

“Going to the Fed, we see that from a short-term perspective, the dollar doesn't look anywhere cheap,” Sneed said.

“In terms of positioning, we see that the dollar looks well-owned, and in terms of valuation, we see that the dollar is either in line with the fair value of the stronger dollar or a little richer, and that shows that the market is anticipating this tighter shift, and if anything, it “It opens the door for disappointment.”

The benchmark index settled during the day at 4.690%, close to its five-month high recorded in mid-April at 4.739%, after jumping by 7 basis points the previous day.

European bond markets were closed for the May 1 holiday, as were most stock markets in Europe and those in China, Hong Kong and much of Asia. US futures fell by 0.2%.

Among the stock markets that traded, they rose somewhat, settling near the all-time intraday high set the previous day and falling 0.3%.

The British blue chip index, which has underperformed its global peers in recent months, was a rare gainer in April, rising 2.4% supported by commodity stocks, while the MSCI world index fell 3.4%, its biggest monthly decline since September.

Another focus in the currency markets is the Japanese yen. The currency fell to 160 to the dollar on Monday, its lowest level since 1990, before rising in several sharp increases to 154.4 to the dollar as traders signaled possible official intervention.

Bank of Japan data on Tuesday suggested Japanese officials may have spent about 5.5 trillion yen ($35.05 billion) to support the currency on Monday, but the yen was last at 157.9, more than halfway to its pre-intervention level.

Oil prices fell for the third day in a row on Wednesday amid growing hopes for reaching a ceasefire agreement in the Middle East and rising crude inventories and production in the United States, the world's largest oil consumer.

It fell by 1% to $85.40 per barrel. It fell 1.3% to $80.90.

Gold settled at $2,284.4 per ounce, down six percent from the highest level recorded in mid-April, also affected by the decrease in tensions in the Middle East.