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Euro rises as Fed rate cut bets weaken dollar


THE dollar struggled near a seven-week low on Wednesday on rising expectations of a US central bank interest rate cut in response to trade conflict-related risks.

Federal Reserve Chairman Jerome Powell dropped his standard reference to the bank being "patient" in approaching a rate decision on Tuesday, saying instead it would respond "as appropriate" to trade pressure.

The Fed rethink weakened the dollar for a fifth consecutive day, lifting the euro and pushing investors into safe-haven assets including the Japanese yen.

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But Wednesday's small moves in the dollar index, which measures it against a basket of currencies, suggested markets had already priced in Fed rate cuts.

"Given the extent of the dovish re-pricing of the Fed outlook and the collapse in US treasury yields in recent weeks, the dollar losses appear fairly muted in this context,"said Chris Turner, head of FX strategy at ING in London.

If global growth worsened, the dollar should benefit from its safe-haven credentials, he added.

The dollar index fell 0.1 per cent to 97.059. It has fallen 1.3 per cent from a more than two-year high of 98.371 touched on May 23.

The European Central Bank (ECB) meets on Thursday, with investors looking to see how concerned policymakers are about signs of a downturn in growth.

Speculation that the ECB will match Fed dovishness and possibly even announce looser terms for a new cheap lending scheme sent German 10-year government bond yields to a record low of minus 0.2250 per cent.

The euro was up 0.3 per cent at US$1.1260, extending gains to a fourth session, and hitting a seven-week high.

Recession fears are sweeping across the world and central banks have in recent weeks cut rates in what could signal the start of a global monetary easing cycle.

Australia's central bank on Tuesday slashed benchmark cash rates to a record low of 1.25 per cent and signalled willingness to go further if the worsening outlook persists.

On Wednesday, the Australian dollar rose 0.2 per cent to US$0.7000 as data showed growth in the Australian economy picked up only modestly in the first quarter.

Last month, New Zealand's central bank cut its benchmark interest rate for the first time in two-and-a-half years as it moved to support a cooling economy and counter global uncertainties.

Against the yen, the dollar edged down 0.2 per cent to 108.125 yen per dollar, within striking distance of a five-month high of 107.845 hit during the previous session. REUTERS