May 23 2024: The U.S. dollar pulled back slightly on Thursday, remaining near a one-week high following the release of hawkish minutes from the Federal Reserve’s latest meeting. The minutes suggested that U.S. interest rates might stay elevated for an extended period due to persistent inflation concerns.
Key Points
Dollar Index: At 04:20 ET (08:20 GMT), the Dollar Index, which measures the greenback against six other currencies, traded 0.1% lower at 104.705, after gaining 0.3% overnight.
Fed Minutes: The minutes revealed that policymakers were increasingly worried about sticky inflation, with some discussing the potential need for further rate hikes. Many Fed officials questioned whether the current policy was restrictive enough.
Fed’s Stance: While further rate hikes seem unlikely, the market now anticipates that the Fed will maintain high rates for longer. Atlanta Fed Chair Raphael Bostic is scheduled to speak later, and traders will look for additional clues from his comments and manufacturing activity data for May.
Sterling Retains Firm Tone After Election News
GBP/USD: The pound rose 0.1% to 1.2730. Sterling remained strong after U.K. inflation data for April showed a smaller-than-expected decline.
UK Politics: Prime Minister Rishi Sunak announced a national election, with his Conservative party expected to lose to the opposition Labour Party after 14 years in power. The pound showed little reaction to this news, as key political risks, such as UK-EU trade relations and the Scottish referendum, are currently seen as marginal.
Euro Gains Amid Positive Economic Data
EUR/USD: Traded 0.2% higher to 1.0839. Eurozone business activity expanded at its fastest pace in a year, with the preliminary composite Purchasing Managers’ Index (PMI) rising to 52.3 from April’s 51.7, supported by strong service demand. The European Central Bank is expected to start its rate-cutting cycle next month.
Yen Flat Despite PMI Improvement
USD/JPY: Largely flat at 156.76, after approaching 157 in overnight trading. Japan’s manufacturing activity expanded for the first time in 11 months, according to PMI data.
Chinese Yuan Under Pressure Amid Trade Tensions
USD/CNY: Traded 0.1% higher at 7.2443, near a six-month high. Tensions rose as Beijing banned certain U.S. firms from trade activities related to China and some arms shipments to Taiwan, retaliating against increased U.S. tariffs on key Chinese industries effective from August 1. China also conducted military drills near Taiwan, heightening regional tensions.
In summary, the U.S. dollar remains strong due to hawkish Fed minutes, while sterling and the euro show resilience amid political and economic developments. The yen remains stable despite positive PMI data, and the Chinese yuan is pressured by ongoing trade tensions with the U.S.