May 22 2024: The U.S. dollar edged up against the euro on Tuesday as Federal Reserve policymakers advocated for patience before initiating interest rate cuts, citing the need for sustained evidence that inflation is on a path to the 2% target.
Dollar’s Performance and Fed’s Stance
The greenback was mostly flat against other currencies ahead of the U.S. Memorial Day holiday next week. The dollar’s solid footing is bolstered by consistent messages from Fed officials about maintaining higher rates for longer.
“Amid a paucity of economic data catalysts this week, trading ranges have narrowed across currency markets. The dollar remains on a solid footing however, bolstered by a drumbeat of high for long messages from Fed officials,” said Karl Schamotta, chief market strategist at Corpay in Toronto.
Fed Officials’ Remarks
Fed Governor Christopher Waller, speaking at the Peterson Institute for International Economics in Washington, emphasized the need for several more months of favorable inflation data before supporting any easing of monetary policy. However, Waller suggested that the probability of a rate hike is “very low” given the recent inflation data is “reassuring.”
Atlanta Fed Chair Raphael Bostic also warned against cutting rates prematurely. He stressed the need for caution to avoid triggering renewed spending among businesses and households that could reignite inflation.
“Fed speakers are driving the market – and they, so far, haven’t said anything traders didn’t expect,” said Helen Given, FX trader at Monex USA in Washington.
Market Reactions and Upcoming Data
The euro was 0.05% lower at $1.0852. Investors are looking forward to Thursday’s data from the European Central Bank’s negotiated wage tracker and the euro zone Purchasing Managers’ Index, which could offer further insights into the euro area’s monetary cycle.
On Tuesday, the U.S. dollar slipped 0.04% against the Japanese yen to 156.20. The dollar-yen pair has moved within tight ranges recently, following suspected rounds of currency interventions by Tokyo to support the yen.
Cryptocurrency Gains
In the cryptocurrency market, ether experienced its largest two-day gain in nearly two years, while bitcoin approached a record high on speculation regarding the outcome of applications for U.S. spot exchange-traded funds (ETFs) that would track ether.
Ether surged 6.5% to $3,728.70, after hitting $3,838.80, its highest level since mid-March. It rose nearly 14% in the previous session, marking its largest daily percentage gain since November 2022. Bitcoin broke above the $70,000 level, last trading 0.25% higher at $69,707, nearing its all-time high of $73,803.25 reached in March.