Dollar catches breath as Fed officials leave market pondering over rates path

THE dollar hovered below a near 2-decade high in Asian trading on Friday (Jul 15), having slipped overnight after 2 Federal Reserve policymakers said they favoured a smaller rate rise than the 100 basis points (bps) that investors were betting on.

Traders had ramped up bets that the Fed would go for a super-sized tightening at their Jul 26-27 meeting after data on Wednesday showed consumer price inflation racing at the fastest pace in 4 decades.

But those bets were pared after Fed governor Christopher Waller and St Louis Fed president James Bullard both said they favoured another 75 bps hike for this month, in spite of the inflation figures.

Fed funds futures currently indicate a 36 per cent chance of a 100 bps increase, down from around 70 per cent before the comments.

Against the yen, the dollar was flat at 138.98, keeping it on track for a 2.1 per cent gain. It touched 139.38 overnight for the first time since September 1998 as US Treasury yields widened the gap to their Japanese counterparts.

The euro was flat at US$1.00245, after bouncing back from below parity on Thursday for a second day.

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Meanwhile, sterling trod water at US$1.18265, after slumping to a 28-month low of US$1.1761 overnight. It is down 1.71 per cent since Friday a week earlier, heading for its worst week since early May as political turmoil casts a shadow over the currency.

The risk-sensitive Australian dollar slipped 0.24 per cent to US$0.6732, heading back towards Thursday’s 2-year low of US$0.66825 after a sharper-than-expected decline in economic growth in key trading partner China.

For the week, the ussie is down 1.77 per cent. China’s yuan touched a 2-month low against the dollar and looked set for its biggest weekly drop since May as the weak data raised doubts about this year’s economic growth target. REUTERS